Mixing money with politics makes a lousy cocktail. Samuel Bankman-Fried, aka Sam Bankman-Fried, is figuring this out at a huge cost. Setting off panic waves in the crypto industry, the Bahamas-based FTX (Futures Exchange), the planet’s fifth largest crypto exchange Bankman-Fried co-founded in May 2019, filed for Chapter 11 bankruptcy protection on 11 November. Panic because FTX was the glittering blue diamond in Bankman-Fried’s crown. Broke, bankrupt and unable to meet withdrawals, FTX, once valued north of $1trn, went under.
Trying to Exploit the Tragedy
Humongous losses to employees and users apart, collapse of FTX means catastrophe. Not only for the still-nascent crypto industry, for America’s startup image and its unsterilised politics as well. At the frenzied height in 2021, market cap of cryptocurrencies had soared to breach the $3trn-mark in November 2021, up from a despairing low of $800bn in January 2021. The fall is fatal, the market cap has hit a disheartening low of $839bn now. https://coinjournal.net/news/chz-soars-by-13-today-as-the-fifa-worldcup-2022-draws-closer/
On any normal trading day, the crash should have become a cause for great crypto concern. However, the FTX collapse is going a step ahead. The crypto calamity is transforming fast into a prickly political issue. Thirsty and desperate Republicans are trying to exploit the tragedy for their narrow political ends. Not surprising, the 30-year-old Bankman-Fried, with a net worth of $30bn and touted to become the planet’s first trillionaire, is an ardent admirer of the Democratic Party.
Sealing His Undying Love
Bankman-Fried splurged over $40mn on 2022 midterms, much of it for the Democratic Party candidates. He was thus the second-largest donor to the Democratic Party in the midterms, close to the 92-year-old mega-Democrat-funder George Soros. Sealing his undying love for the Democrats, Bankman-Fried declared recently he was setting a ‘soft ceiling’ of $1bn for the Democratic Party’s campaign and causes in the coming 2024 elections. https://www.nbcnews.com/politics/2022-election/cryptobillionaire-says-spend-record-breaking-1-billion-2024-election-rcna30351
This does not mean Bankman-Fried neglected the Republicans. He granted recently $45,000 to the National Republican Congressional Committee and over $100,000 each to two groupings backing Republican Senate candidates in deep-red states. He did donate to a few handpicked Republicans, including the Trump-backing and Peter Thiel-propped candidates such as J D Vance in Ohio and Blake Masters in Arizona. Plus, entities funded by Bankman-Fried too doled out largesse to American political parties. https://www.politifact.com/factchecks/2022/nov/15/instagramposts/ftx-helped-with-a-cryptocurrency-fundraising-site/
Bizarre Conspiracy Theories
Doubtless, Bankman-Fried has been a muscular political donor and his FTX collapse is thus causing turbulence in American politics. Such was the degree of his political involvement, the uncanny timing of FTX insolvency, coinciding with the midterms, is whipping up weird right-wing conspiracy theories today. In all probability, Bankman-Fried liked to swing both ways. By aiding both the Democrats and the Republicans, he was hedging his bets in a bid to stay safe, regardless of electoral outcomes. This was how he tried to ensure he had a major say in the electoral outcome. Typical of a crypto hedge exchange founder.
Bankman-Fried’s two-way political swinging is not stopping the riotous Republicans from floating conspiracy theories. Sure, Bankman-Fried is facing his four-year career’s worst-ever crisis now. One swift blow did slay his crypto empire and billions of dollars did flow out. Alameda Research, FTX’s trading firm, did go bust, dragging FTX down with it. FTX did breach investor trust to lend $14bn assets to Alameda, which did issue its own digital tokens as collateral. The castle of cards did collapse when there was a run on FTX. Post-collapse, a slew of dollars did stream out of its accounts, forcing the exchange to file for bankruptcy. Nevertheless, these unfortunate events are not as irksome as the politicisation of FTX’s fateful Chapter 11 filing is. They are not as prickly as the fast-circulating right-wing conspiracy theories are. https://www.mediamatters.org/foxnews/right-wing-outlets-are-pushing-unfounded-conspiracy-theory-aboutcollapsed-cryptocurrency
Though the right-wing conspiracy theories are irksome and prickly, they are gaining ground, albeit on a limited scale now. Limited because the Democrats have gained control of the Senate, despite the false Republican propaganda of a rising red wave and the overstressed ideological link between FTX and the Democratic Party. FTX did not deny its love for the Democratic Party, did not hide its grants to the Party in the midterm and has been open over its role as a notable partner-facilitator to Aid for Ukraine, a crypto donation program. Yet, the Republicans are going to town with their bizarre conspiracy theories.
The Three-Dimensional Plot
Ukraine’s crypto donation program joins hands with select crypto players. FTX is one such select program partner. Right-wingers in America are losing no time in linking the program with Democrat Biden’s huge-hearted gestures of showering billions of dollars on Ukraine, though it is ostensibly for helping the East European country fight Russia. Ukraine has been quite welcoming to crypto donations right from the war’s early days. This upfrontness of Ukraine was a sign of its unquenched thirst for war funds, which had dried up as its banking system stood paralysed.
As Republican conspiracy theories are, the FTX-Democrats-Ukraine triangle and the three-dimensional plot too are gathering enough steam in the Republican media. The conspiracy theory has gained greater traction as the Republicans are bent on accusing Bankman-Fried of laundering his slush money ‘through Ukraine to reach the Democrats’ in America. The Republicans are charging the Democrats routed funds to Ukraine and through FTX routed them back to their electoral candidates in America. Airy-fairy charges these were, not founded on hard documented evidence. https://bitcoinist.com/aid-for-ukraine-denies-link-to-ftx-rumorpropaganda/
Circuitous Laundering of Money
Yet, the Republicans continue to sling slush. They consider it as their good luck, a part of this slush is sticking on to Democrats now. Funds which snaked through such circuitous laundering runs into billions of dollars, say motivated sources. However, Sergey Vasylchuk, a blockchain expert and CEO of the Ukraine-based blockchain outfit Everstake, who is incidentally the co-initiator of the Aid for Ukraine program, confirmed on record: Hit hard by its broken banking backbone, Ukraine used cryptos to buy nothing other than basic necessities and most essential supplies. https://medium.com/helloiconworld/ukraines-ministry-of-digitaltransformation-ftx-and-everstake-launch-crypto-fundraising-site-aid-1d9b65834b1f
One estimate shows around $60mn has been crypto-donated to date to Ukraine since the onset of the Russian aggression. Bankman-Fried’s FTX appears to have played a major role in these donations. In fact, FTX was the first and the sole exchange to facilitate these crypto transfers. However, FTX denies of having received funds from Ukraine and insists it accepted nothing other than crypto donations through the Aid for Ukraine program. Such donations were meant for conversion into dollars and ultimately transferred to the National Bank of Ukraine.
Audacious Gamble Doomed to Fail
To an extent, these premises prove how the Republican rumour-mongers are ignorant on how the crypto works. Yet, the sensational right-wing conspiracy theories are going viral, despite the blockchain being transparent. As assorted baseless allegations get louder by the day, fingers are going up towards the Elon Musk-owned Twitter for publicising the weasel conspiracy theories. The truth behind FTX collapse is not yet uncovered and the details remain not yet fleshed out. However, the hard reality is incontrovertible: Bankman-Fried wanted to play a major role and have a significant say in the official crypto policy framework of America. https://finance.yahoo.com/news/elon-musk-tries-conspiracy-theory-095213237.html
The draft crypto policy is now set to go before the US Congress for approval. This is when the question of Bankman-Fried’s political contributions butts in. With FTX sinking under, a retrospective view proves Bankman-Fried’s audacious gamble was doomed to fail right from the word start. Today, Bankman-Fried is neither the rich crypto mogul nor the influential crypto-policy hawk he wanted to be.
Evident in the Market Cap Meltdown
The tragedy now is bigger than his dreams. As much as 90 per cent of Bankman-Fried’s personal wealth of $16bn vanished in a matter of 48 hours. The last-minute save-FTX buyout operation launched by Zhao-owned rival Binance too fizzled out. As Zhao and his number-crunchers combed through FTX’s cryptic financials, they knew they were looking at a lemon and not a solid business proposal. Binance quickly backed out saying it was standing out as investigations into FTX and its operations were in progress. https://www.cnbc.com/2022/11/09/binance-backs-out-of-ftxrescue-leaving-the-crypto-exchange-on-the-brink-of-collapse.html
Indeed, Bankman-Fried has done a full circle. In a cruel irony, FTX had saved many crypto players from going under in moments of crisis. Today, FTX stands helpless. Bankman-Fried’s image as a crypto policy-making facilitator for digital startups lies in tatters. Worse is the fate of FTX users who are unable to effect withdrawals. Excesses of Bankman-Fried have not only damaged his personal reputation, they have dealt a terrible body blow to the crypto industry’s credibility. This is quite evident in the meltdown in the market capitalisation of major crypto players, post-FTX. On Wall Street, crypto industry’s market capitalization lost much boost to settle at a disheartening $816bn. https://www.coingecko.com/en/global-charts
Real Politics Begins Now
Though congressional hearings are sure to follow, many ethical posers need prior answers. Will the hearings bring back lost fortunes to hapless users? This question should keep the midnight oil of the regulators burning. Who is responsible for leaving the crypto industry unregulated? Who should shoulder the blame for leaving the users exposed? Who should be charged, the Democrats or the Republicans? Who abandoned the responsibility for setting the limits for leveraging and making disclosures mandatory? The real politics begins now.
Despite the deafening cacophony of right-left politics over the FTX saga, battered crypto-users are not missing the crude symbolism. Bankman-Fried’s curly disheveled hair and his untrimmed physique squeezed into ill-fitting clothes show how disorganised his political relations are. Failure to connect the dots on Bankman-Fried’s personal profile is becoming a major loss to Bankman-Fried’s political beneficiaries.
Allowing a peep into his politics, Bankman-Fried told Forbes in October 2022: “In the end, I care about policy more than politics. My giving has been bipartisan, and my goal is to help support great policy makers.” https://www.forbes.com/sites/zacheverson/2022/11/11/checks-imbalances-sam-bankman-frieds-political-donations-how-billionaires-faredin-the-elections/?sh=5d8f9af33433
Before Bankman-Fried could help support the making this great crypto policy for America, his unreined financial excesses did him in. What tempted him to do what he did? Did his belief in Effective Altruism (ea) guide him into rationalising his devastating crypto actions? Possible. Was there a fraud behind the collapse of FTX? May be. If fraud is indeed proved, politicians, particularly the Democrats, who were major beneficiaries of Bankman-Fried’s largesse, will have to answer nettlesome questions on conflict of interest. President Joe Biden is a Democrat. If, despite FTX floundering, the crypto industry does not see major loophole-plugging reforms soon, again the Democrats will have to stand in the dock. Hope the politics in the cocktail does not end up killing the money.