Monday, November 28, 2022

“Friends considered suicide”: Survived FTX cryptocurrency crash

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The rich and famous have been promoting cryptocurrencies, but it is retail investors who will feel the pain after the financial losses following the FTX collapse

The dramatic collapse of FTX – the world’s largest cryptocurrency exchange – on Thursday, November 10 has been compared to the financial crisis of 2008: the equivalent of JP Morgan’s collapse in a single day. In January, the Bahamas-based company was valued at $32 billion (£267 billion) and FTX’s 30-year-old billionaire chief executive Sam Bankman-Fried was seen as the next tech genius. As of this month, it has filed for bankruptcy. The amount owed to investors is as high as $8bn (£6.6bn).

While this may feel like a historical shock, most experts have been arguing for years that a crypto meltdown like FTX’s is imminent. Now that this is the case, the losers are not only wealthy investors, crypto founders or celebrities who pumped money and influence into this company, but also millions of ordinary people whose lives – and livelihoods – are tied to this cause, built upon fail.

Ever since cryptocurrency was invented, skeptics have been desperate to warn investors about the extreme risks involved in investing and the inevitability of crashes like this one. “It’s a casino that’s embroiled in all these lies,” Stephen Diehl, a longtime crypto critic and author of Bursting the crypto bubblehe said financial times“If you tear back those lies, what’s left looks like a net negative to the world.”

Cryptocurrency has been repeatedly described as a scam and even a Ponzi scheme, but over the past year in particular, those warnings have been confirmed. In the spring of this year, the crypto market lost $1 trillion in value, a moment that unsettled even some crypto evangelists. But much of the crypto world continued to invest despite all the obvious signs of impending disaster.

In its early years, crypto was largely an obsession for a specific niche of people who happened to be both wealthy and very online; a cause peddled by nerds and promoted by billionaires and tech brothers (perhaps most famously Elon Musk).

In the last two years, however, there has been a boom in campaigns to make crypto investing accessible to the average person — marketed as a savvy, get-rich-quick investment that people could cleverly get into on the ground floor, despite all the evidence to the contrary.

We’ve seen Paris Hilton on TV shows like The Tonight Show with Jimmy Fallonone of America’s most popular talk shows.

Kim Kardashian was fined more than $1 million by the Securities and Exchange Commission (SEC) this October for promoting a crypto asset on her Instagram page (she has agreed to do so in the next few three years no longer to do). FTX paid for a TV ad for the Super Bowl and pumped tens of millions of dollars into certain candidates running in this month’s midterm elections.

Since FTX collapsed, investors have filed a lawsuit against celebrities who have appeared in ads for the exchange, including Gisele Bundchen, Larry David, Tom Brady and Naomi Osaka. The US Federal Trade Commission has said that the rise in crypto scams more broadly is due in large part to these celebrity endorsements.

Now, with the fall of FTX, there are millions of people who have lost huge amounts of money that they believed were safe. For the past two weeks, social media has been inundated with people who have lost thousands in the collapse and have frantically turned to Twitter, Reddit and Instagram for advice on how to get their money back.

“Honestly, when I heard about it, I laughed,” said Thomas*, a 40-year-old software developer living in east England I. He has been investing in crypto for years and lost £8,500 in the FTX collapse and said while he has regularly invested in his FTX account over the months and has also invested in crypto elsewhere, he knows it is risky.

“I don’t know much about FTX as a company, nor about Sam Bankman-Fried. I purposely didn’t read recent articles about it,” he said. “There’s a part of me that wrote it off as soon as I transmitted it.”

Others would not answer detailed questions, simply lamenting the state of their personal finances, with many saying they had not only lost thousands but most of their life savings.

One told me that the financial devastation was only made worse by everyone “treating”. [the FTX collapse] like a joke”. Because a major crypto crash has been so widely predicted, social media has been dominated by people who have watched the rise of crypto with morbid fascination – now they’re excited to see their predictions come to life in spectacular fashion be awakened.

Another FTX investor told me he saw no point in seeking advice online because the few times he’d tried it only resulted in answers calling him “a fool”.

However, the repercussions of losing that much money can be severe. “It’s going to have a massive impact on some people,” Thomas said. “I’ve had friends who would call me or come up to me while they were contemplating suicide.”

However, he says he is “comfortable” enough to be comparatively calm about his own losses. “I have trouble understanding the mentality of someone investing their savings in something like this [FTX].”

As of Thursday, November 10th, there have been countless stories of public bodies and pension funds losing hundreds of millions after investing staggering amounts with FTX – most famously the Ontario Teachers’ Pension Plan which has more than US$95 million -dollars invested.

There is a certain glee when celebrities and wealthy crypto investors lose painful amounts of money to a scam they themselves promoted. However, the real losers in the FTX collapse, and by extension crypto collapse, will never be those on top, but the millions of ordinary people who convinced them to board a visibly sinking ship. The rich will recover and rise back to the top. The people who are bereft of their life savings, who are sitting at the bottom, are not going to be so lucky.

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