Jim Geraghty
National Review, Nov. 18, 2022
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
On the menu today: Over the course of November, you’ve probably noticed increasingly dramatic coverage of the collapse of the cryptocurrency exchange FTX. It turns out that the disheveled young so-called genius running one of the world’s biggest cryptocurrency exchanges and a major cryptocurrency hedge fund — a man once touted as the next Warren Buffett — was making it all up as he went along, like Bluto Blutarsky in Animal House. In other words, the cryptocurrency titan who was previously the Democrats’ second-biggest donor after George Soros now looks like a younger, nuttier Bernie Madoff.
Sam Bankman-Fried: Crook, Nut, or Both?
I haven’t written one of these explainers since the GameStop brouhaha. If I’m writing an “explainer,” there’s a good chance I needed the subject explained to me.
Let’s start at the very beginning, because as Maria Von Trapp reminded us, that’s a very good place to start. A cryptocurrency is a money-like asset that is designed to be used on computer systems and electronic banking, but that is not backed by anything like a government or a bank. Theoretically, anything could be used as currency. Back in grade school, you probably used Halloween candy as a lunchroom currency in early November — two small bags of M&Ms equaled one Snickers bar. Unlike the shell beads, coins, paper, and other objects used as currency throughout history, cryptocurrency is not tangible or physical; it only exists electronically. But if two people agree that the cryptocurrency has a particular value, they can use it to buy or sell goods or services. Or someone can buy a cryptocurrency and hold onto it like a stock or other asset, hoping it rises in value.
Right now, the most widely held cryptocurrencies are Bitcoin, Etherium, Tether, USD Coin — which, as the name would suggest, is pegged to the dollar — and BNB.
Back in 2017, Sam Bankman-Fried noticed that Bitcoin was bought and sold at significantly different prices in different countries’ markets — sometimes 60 percent more than the lowest priced markets. He bought Bitcoin in the markets where it was the cheapest, and then resold it in South Korean markets at a much higher price, what he nicknamed “the Kimchi Premium.” After a month, he launched his own trading house, Alameda Research. … SOURCE
