FTX is a familiar tale of stupidity and greed

With one huge, huge and overpoweringly important exception, the multi-billion dollar collapse of a crypto empire that almost none of you had ever heard of before, says very little about crypto itself.

The spectacular rise of FTX and its associated Alameda Research – brainchilds; more accurately, lucrative, for a while, idiocies of some 20-something named Sam Bankman-Fried – and their utterly squalid and sudden implosions, was at core, like any other spectacular collapse over the decades and centuries and indeed millennia.

All of them – whether individual entities like a Barings, a Bear Sterns or a Lehman; systemic episodes like the GFC, the Asian debt crisis; of countries like a Mexico or Argentina; or crazes like the South Sea Bubble or tulips, and now FXT – have varying degrees of exactly the same cocktail of every boom and every inevitable bust.

Greed, stupidity, arrogance, gravity-defying ignorance and lack of even the slightest hint of institutional memory, wrapped up in extravagant levels of debt and dizzying multiples of leverage, and usually topped off by insiders helping themselves to large lumps of any real assets.

FTX founder Sam Bankman-Fried. Photographer: Lam Yik/Bloomberg

There was though a new twist in the FTX debacle –the decade of zero-interest ‘free money’ and trillions of dollars of money-printing; and that places a particular component of blame at the door of the major central banks and of the Fed in particular.

What we then got as a consequence at the intersection of ‘free money’ and 21st century tech was crypto in general and an FTX – and who knows how many others, similarly now teetering – in particular.

First, we have an ever-ascending empire built entirely on debt and sand.

Only the ‘sell’ was different to every other boom and bust going back through the centuries; not the ‘substance’ – more accurately, the always not substance. The FTX ‘sell’ was a leveraged marketplace for trading in already mind-bogglingly leveraged crypto.

The ‘sell’ with Alameda (not) Research was highly leveraged investment and trading in crypto.

As with every other boom implosion before them, when the music stopped and things went into reverse, the apparent asset base evaporated, after being plundered. Further, like every other collapse, the actual implosions had been immediately preceded by desperate attempts to use the actual cash money available within the entities to prop them up and to delay the inevitable. This as always, yet again, made the actual losses that much bigger; indeed all-but guaranteeing zip, zero, nothing out of the wreckage.

It was rather ironic that even in the world of crypto, that the only thing that ever mattered was old-fashioned cash. And when the cash ran out, so-called ‘digital money’ was, well, anything but money. The big point, the ‘differentiation’ to a ‘normal’ boom and bust implosion was the way this showed that with crypto ‘there is no there there’. A normal business collapses, even a normal financial institution, there are real tangible assets to be realised for creditors – if of course they can be captured before they are squandered or stolen by the incumbents.

There might even be intangible assets inside the collapsing entity, like brand names and franchises; although they tend to evaporate at the implosion.

With crypto, in the broad, there really is nothing; the only asset in most – and I stress that word, most - crypto entities is the hot air which keeps them airborne and indeed the all-too necessary ever-ascending.

In the 21st digital reality there might be a theoretical value-creating place for block chain and distributed ledger, separate from and indeed protected against national fiat currencies.

But is it only viable in a world of free money? And how do you protect a functioning valid block chain – if there can be such a beast - against the FTXs, Alamedas and generalised human stupidity and greed?