Why in the hell did we need cryptocurrency? The collapse of FTX and SBF explained, sort of

It's deeply surprising that investing in money that isn't money, at a bank that isn't a bank, didn't go well

By Lucian K. Truscott IV


Published December 10, 2022 8:00AM (EST)

Sam Bankman-Fried | Bitcoin and FTX (Photo illustration by Salon/Getty Images)
Sam Bankman-Fried | Bitcoin and FTX (Photo illustration by Salon/Getty Images)

Let me ask you something: Let's say you have a lot of money, or even just a moderate, middle-class amount of money, and you're looking for someplace to keep it. I mean, you don't just leave money sitting around on the kitchen counter or on a side table next to you on the couch so you can reach over and fondle it as you watch the ads for stuff you don't need, like a Peloton bike, because you already took the one you bought a couple of years ago and put it in a friend's garage sale and managed to get 20 bucks for it, so now you have yet another 20 bucks to add to the money you were already looking for a place to keep.

You could put all your money, including the Peloton $20, in a bank. Of course, if you walk in with a wad of cash and ask for a deposit slip and make a big deposit, that might garner you some perhaps unwanted attention, but hey! A bank is a bank and that's what they're supposed to do, right? Take your money and keep it for you so you don't have to worry about somebody coming into your house while you're sleeping and take it from you.

I've always loved that phrase, usually delivered by a friend offering you advice on an occasion or in a place in which alcohol is involved: "You should put that money to work for you, man!"

Alternatively, you could put your money to work for you. I've always loved that phrase, usually delivered by a friend offering you what he thinks is good advice on an occasion or in a place in which alcohol is involved — "you should put that money to work for you, man!" I don't know about you, but I have never personally witnessed any money getting up in the morning and drinking a cup of coffee and grabbing a lunch box and going out the door to work, but maybe that's just me. The idea behind putting your money to work for you is, or can be, a good one — the concept of taking at least some of your money and putting it in an interest-bearing savings account so it earns interest, or using a portion of your money to buy stock — a certificate of part ownership — in a company, whereby if the company is successful at say, selling Peloton exercise bicycles, will increase in value and possibly even pay you a dividend at the end of the year, adding to the amount of money you initially had.

Or, in this modern age, you could use your money to buy a bitcoin, or even multiple bitcoins, or some other form of cryptocurrency, which if you've been reading the headlines lately, can turn out to be a little like taking your money and exchanging it for chips at a casino and putting piles of them on every single number or red or black or odd or even betting line at a roulette table and then watching the croupier —  wow, there's a guy in a vest and a bow tie called a croupier, kind of like a fancy teller! —  spin the roulette wheel and wait for the little ball to fall into a slot that allows the croupier to take all of your money except for however much of it you put on the number or color or odd or even that won.

That is in fact what happened to a whole bunch of people — we don't know the number yet, but we're told there were lots of them — who thought it would be a great idea to buy bitcoins or ethereum tokens or any of the hundreds of other cryptocurrency mediums with their hard earned money, rather than doing something boring with it like put it in the stuffy old bank over  on Broad Street or buying stock in a boring old company like, say, Peloton. 

These people all bought cryptocurrencies from a company called FTX, or in some cases stored cryptocurrency there that they'd bought someplace else, because FTX was — notice the past tense, because FTX is no longer — an "exchange" where cryptocurrencies could be bought and stored and, yes, exchanged. The question of what, exactly, cryptocurrencies could be exchanged for remains somewhat mysterious, so we'll have to suspend our normal, rational hunger for such information as one would normally want, like what you're getting when you buy a cryptocurrency, or what exactly you can do with it once you buy it, because, well, it appears that when you dive into the shiny new world of cryptocurrencies, it is necessary to suspend normal human stuff like rationality and beliefs, or it wouldn't make sense for you to be buying cryptocurrency from some "exchange" in the Bahamas, where  FTX was incorporated, in the first place.

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I was curious as to what exactly cryptocurrency is, so I decided I would do a little research, given the fact that a whole lot of people just lost a whole lot of money buying or investing in the stuff. Well, what I came up with that best describes this shiny new world came from Wikipedia:

A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

See, that would give me pause right there. The thing we're talking about turns out to be just a new form of money! Except it's, uh, not exactly money, because you don't take your money and invest in money, you hopefully, anyway, invest in something that is not money so that your money, which is over here…or it was over here, anyway…might have a chance to increase. In other words, you'd take some of your money and invest it in something and hopefully when all is said and done and you want your money back, it will turn out that when you sell the thing you bought with your money, you will end up with more of it.

So the thing we're talking about turns out to be just a new form of money! Except it's, uh, not exactly money, because you don't take your money and invest in money, do you? You invest in something that is not money.

Well, folks, that's not what happened with FTX, because it turned out that what happened with all the money all these people invested with FTX, was that the company turned around and bought something called FTT's, which are described as —  bear with me here — the "native token of the FTX trading platform," according to CNBC, the network that is supposed to know a whole lot about stuff involving money.

See? Already at your dinner party, you've got some more brand new stuff to talk about! FTT, a really cool acronym! Native token! Trading platform! Just listen to the knowledgeable-sounding stuff pouring out of your mouth as you discuss the important dinner party topic of what you, and others, are currently doing with your money!

But it turns out there was a problem not only with FTX and FTT, which was basically its house cryptocurrency, but with the whole idea of these cryptocurrencies, because the very nature of cryptocurrencies is that they can essentially be minted by anyone, in any amount, at will, and then sold, or exchanged as the saying goes, for prices set by the market, and the market, in this case, was FTX itself, the exchange that had minted the cryptocurrency FTT in the first place. If that sounds a tad like double dealing, well, I'm with you there, for sure.

But anyway, let's try to understand what happened with this massive financial clusterfuck. According to every report I've read, the guy who started the whole thing, one Sam Bankman-Fried, who every report in the whole world refers to by yet another acronym, SBF, doesn't really understand it himself. 

Bankman-Fried — oh, hell, we may as well go along with the rest of the acronym-tossers and call him SBF — has been giving interviews all over the place trying to explain what he thinks happened to billions and billions of other people's money that he accepted as investments at FTX and then somehow, like just poof!, disappeared. Nobody knows what happened to it, various amounts of it, anyway. Eight billion, 20 billion — the billions get thrown around like, yes, tokens in these stories about SBF as he apparently tries to understand himself how one day, there was all this money, enough to buy condos in the Bahamas and private jets and to give away to charities as part of his "ethical philanthropy" philosophy, and even enough to have one of his companies (he owned…past tense again…90 percent of it) called Alameda Research, which he described as an investment bank, lend him a billion dollars —  apparently a billion of the dollars that people invested in FTX, which he turned around and used to buy FTTs sold by Alameda Research but, in reality, used to fund a loan to himself.

You're going to find this hard to believe, but when I say SBF is struggling to understand what happened to all the money he took in at FTX, he is really struggling, or at least he's trying to look like he is. You would think that someone who started a business investing other people's money would have some understanding of what he was actually doing with all that money, but in the case of SBF, you would be wrong. All of SBF's answers to specific questions about what happened to cause the collapse of his multi-billion-dollar empire wander and pause and hem and haw, but let's just take a single example to give you a taste of it. 

You would think that someone who started a business investing other people's money would have some understanding of what he was actually doing with all that money. In the case of SBF, you would be wrong.

We're talking here about a 30-year-old wunderkind who started this gigantic cryptocurrency market — is that what it is? I'm not sure, and neither is he, apparently — and now finds himself not only in the public eye but on a legal hotseat involving the Securities and Exchange Commission, the Department of Justice, and God only knows how many foreign law enforcement entities, and here is what he sounds like. 

Reporter Theodore Schleifer of the online magazine Puck interviewed SBF by Zoom from his residence in the Bahamas. Just to give you a flavor of this guy and how he's taking the whole thing about losing tens of billions of other people's money (and nearly all of his own fortune along the way), here is how Schleifer introduces the circumstances of the interview: "Over the course of 45 minutes, during which Sam occasionally played Storybook Brawl on his computer, we discussed…" Well, they discussed a lot of things, but that single sentence kind of tells you all you need to know about the baby-faced SBF, doesn't it?

Here is just one excerpt from the interview, quoting the question as well as the SBF answer to give you even more flavor of SBF's knowledge about what we will call the "whole crypto thing" and his attitude about his role in the collapse of FTX and what happened to all those people's money.

Schleifer: I have always wanted to understand how you had so much personal liquidity to take a $650 million stake in Robinhood, to invest hundreds of millions in Anthropic, and spend tens of millions on politics and philanthropy. Where did that money come from?

Sounds like a reasonable question, doesn't it? It's money. You took it from people. Where did it go? What happened to it? 

SBF: At the end of the day, dollars are fungible, which means that it's not trivial to answer the question of where $1 in particular came from. But my basic sense is that the bulk of it just came from trading profits from Alameda. Between 2019 and just reaching 2021 or so, all told, Alameda had, I think, a couple billion dollars of trading profits, and then had obviously a whole lot more in market profits, although that all crashed, I think, this year.

Got that? "The bulk of it." "Trading profits." "A couple billion dollars." "A whole lot more in market profits." "That all crashed, I think, this year."

He thinks that all crashed. And what the fuck is the difference between so-called trading profits and market profits? Profits from what? Alameda Research was an investment bank. Investment banks invest money in stuff. What did Alameda invest in? And if FTX was established as a cryptocurrency exchange in order to be outside the controlling claws of governments and banks, why the hell did it need an investment bank anyway? 

Alameda Research was an investment bank. Investment banks invest money in stuff. What did Alameda invest in? And if FTX was established as a cryptocurrency exchange in order to be outside the controlling claws of governments and banks, why the hell did it need an investment bank anyway?

SBF still doesn't understand what happened to all that money he took from people and put into FTX and turned into FTTs or whatever the hell else he turned it into, but I think I do. It was all just another boring old-fashioned Ponzi scheme, you know, where somebody sets up a phony company and takes people's money and promises them a big no-risk return on their investment, and then he just does whatever the hell he wants with it. Bernie Madoff ran one of those in much the same way SBF ran his. On one floor, he had a company that took in the money. On another floor, he had what he called his "trading" department, where the money was supposed to be invested, like an investment bank does. Instead, on that other floor, he had a whole department that just created phony statements which were mailed to investors claiming that their money had returned a 10 percent profit, or something like that. But when the investors wanted their money back, there was no money, because Bernie had spent it on watches and fancy cars and airplanes and houses.

Think of it this way: SBF had one floor, FTX, set up to take in the money, kind of like a cashier at a bank. And then he had another floor, Alameda Research, set up to invest the people's money, but that wasn't what they were doing at all. They were minting a cryptocurrency called FTT, and then sending people statements telling them how many FTTs they had. But the money — you remember money, the green stuff people earn with their hard work — was being used by SBF to donate tens of millions to Democrats right out in the open, and the same tens of millions to Republicans as "dark money," because, you know, Sam didn't want all his investors like Tom Brady and Gisele Bundchen and other notables to have to sit at dinner party tables and talk about how their money was being used to elect nasty, distasteful, MAGAish Republicans, did he?

SBF is out there as we speak, on a kind of the one hand didn't know what the other hand was doing tour, giving interviews to Puck and Vox and ABC's George Stephanopoulos, trying to get the heat turned down on the stovetop he finds himself parked on. I never thought I'd see a cool customer like Stephanopoulos have his head explode as he listened to SBF's circular reasoning and dodging and shrugs and whatever's, but I swear I saw old George's hands fly up at least twice grabbing at his head to make sure it was still there.

But SBF knew, because both of those hands were his, and he used them to do two things: take money from people and spend it on himself and the things he was interested in, like politics and "ethical" philanthropy, and video games that he could play on his computer while he was giving Zoom interviews from his sparkling condo on the sparkling waters of the Bahamas.

And the whole cryptocurrency thing? Well, it's just rolling along, taking in actual dollars and turning them into so-called cryptocurrencies, which can only be used, so far as I can tell, to buy other cryptocurrencies or to be returned to investors as actual cash, the way people used to do at banks when they wrote a check and stood there waiting as a cashier counted it out for them before handing it over. 

Why people want to buy funny money like cryptocurrencies rather than, say, Peloton bikes or stock in Peloton-style companies is a subject for another time, but I'm pretty sure it has something to do with the ever-present need for having something hip and hot to talk about at dinner parties.

By Lucian K. Truscott IV

Lucian K. Truscott IV, a graduate of West Point, has had a 50-year career as a journalist, novelist and screenwriter. He has covered stories such as Watergate, the Stonewall riots and wars in Lebanon, Iraq and Afghanistan. He is also the author of five bestselling novels and several unsuccessful motion pictures. He has three children, lives in rural Pennsylvania and spends his time Worrying About the State of Our Nation and madly scribbling in a so-far fruitless attempt to Make Things Better. You can read his daily columns at and follow him on Twitter @LucianKTruscott and on Facebook at Lucian K. Truscott IV.

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Bitcoin Capitalism Commentary Cryptocurrency Finance Fraud Ftx Sam Bankman-fried