The fall of FTX was unlike anything encryption had ever seen before. From how quickly it fell from the upper echelons of space to the spicy details surrounding its former CEO Sam Bankman-Fried, it was a TV-mature drama.
Almost four months later, the drama shows no signs of stopping. If anything, it has only intensified as we march into October 2, 2023, when SBF is expected to go to trial after pleading not guilty to eight criminal charges in its first court hearing in early January.
The unusual manner of the conclusion of the exchange lent itself to all natures of wild conspiracy theories. One of the juiciest theories is that SBF was a horse placed by mysterious powers to break down cryptography. This theory is part of a bigger, more overwhelming one: FTX was built to fail.
The question is, did those powers provide for this? This piece explores in depth the conspiracy theory “cryptography was built to fail.” Be sure to take each section with a huge grain of salt.
Table of Contents:
Logic
Proponents of this conspiracy theory believe that FTX was built to fail from the start to pave the way for crypto regulations. They believe that high-level actors within the U.S. government are behind the founding of the exchange, its flying too close to the sun, and its eventual fire.
Like any self-respecting conspiracy theory, this one has a kernel of truth: the relationship between the United States and cryptocurrencies has always been difficult. Technology advocates believe that governments should not come to control the financial aspect of people’s lives. Crypto aims to snatch that power and return it to ordinary people.
It is this quality of currency that governments are agitating. From Nigeria to China, some countries have banned the digital asset class altogether (although citizens have circumvented such prohibitions).
While every country risks losing to cryptocurrencies, the US has more to lose. The US dollar is the most powerful currency and holds the coveted status of a global reserve currency. If crypto, which eliminates intermediaries and is cheaper to send, gains dominance, it would mean bad news for the dollar.
Yet, as a country that prides itself on being a beacon of innovation, the last thing the United States wants to do is regulate the industry to oblivion, or at least it seems to do. This is the part that conspiracy theorists have escaped with.
According to their thinking, some more sketchy elements of the implosion of the exchange make it look like FTX was built to fail.
Let’s explore these elements.
#1. FTX donated to the Democratic Party
In the fury, after it was leaked that FTX was insolvent, it emerged that SBF had donated millions of dollars to the Democrats and, in particular, to the Joe Biden campaign.
SBF would later reveal that it had also donated to Republicans, but the damage was already done. Theories flew that the former head of cryptocurrencies was in bed with the establishment. The fact that his mother, Barbara Fried, had political connections (as a board member of the political donor organization Mind Gap) only fanned the flames.
In addition, SBF had calculated an image of the sympathetic crypto ambassador in Washington, who appeared in Congress to testify in favor of crypto regulations and curry favor with the political class. This didn’t win him friends in the industry. Crypto executives typically keep politicians at a distance and have felt betrayed.
Such feelings of betrayal surfaced when Binance sold its FTX tokens, which essentially triggered the collapse of the exchange. CZ, CEO of Binance, tweeted about the selloff: “We’ve given support before, but we’re not going to pretend to make love after the divorce… We won’t support people lobbying against other industry players behind their backs.”
In short, the depth of the diabolical alliance between Bankman-Fried and Washington raised eyebrows and further fueled the conspiracy theory.
#2. SBF improperly lent FTX client funds to its crypto hedge fund
One of the
most surprising revelations in the wake of the exchange’s fall was Bankman diverting client funds to crypto hedge fund Alameda – an affiliated company, to fund risky market bets.
This move, which Bankman himself called a “shoddy judgment call,” set the swap for bankruptcy long before his fictitious balance sheet was made public.
The Alameda thing was difficult for many to understand. He seemed blatantly reckless, overly ambitious, and accurately poor in judgment. All this in the face of the control to which crypto companies are usually subjected.
For example, Coinbase – the largest exchange in the United States, is known to play it safe and avoid conflicting with regulators. Binance has hired former senior U.S. government figures to guide it on how to stay on the sweet side of U.S. regulators (with varying results).
The point is this: those exchanges would find it unthinkable to do something as stupid as illegally shuffling client funds. What was SBF thinking then? Or is there more than meets the eye?
#3. Mainstream media covered the consequences of FTX with kid’s gloves
It has not escaped some observers how cautiously the mainstream media has covered the fallout from FTX. Publications such as the New York Times, Forbes, Reuters and The Economist have been accused of writing “puff pieces”.
High-profile people like Coinbase CEO Brian Armstrong, Kraken founder Jesse Powell, and Twitter owner Elon Musk led the chorus. “Why the piece of breath @nytimes”? Musk questioned, while Armstrong complained, “The NYT is writing puff pieces about a criminal.” Powell accused the MSM of “betraying their duty.”
Most people expected hard cover, taking no prisoners. Nothing less was “politically motivated,” “biased cuckolding,” or, more significantly, “strange.” And it only fueled the conspiracy. In fact, some people have remarked that they weren’t conspiracy theorists before — but with the way they thought the media handled the saga, they made one.
FTX Fallout will be felt for years
As with any notable public fallout, conspiracy theories usually pop up. FTX fits more than well with the bill of such a fallout.
No one knows the exact agreement with what brought us here. Maybe one day the cryptosphere will make sense of all this. For now, conspiracy theories continue to garner considerable attention, no matter how outlandish the claims.
