The dramatic collapse of cryptocurrency exchange FTX sent shockwaves around the world last week, especially after it emerged that company executives stole at least $1 billion. in customer funds. to fund risky bets that never paid off. About 1 million people have money frozen in the bankrupt exchange, in a collapse that is also expected to affect the world’s poor and working class workers who have never owned so-called ‘digital assets’. “.
In Canada, pension plan managers had to reassure public school teachers that their exposure to FTX was limited after it emerged that the Ontario Teachers’ Pension Plan had invested $75 million dollars in business. The investment could end up being worthless, but it represented less than 0.05% of the assets of the pension plan, the fund the managers said.
Meanwhile, in El Salvador, market turbulence caused by the fall of the FTX has brought one of the poorest countries in the Western Hemisphere one step closer to an economic crisis. The administration of right-wing President Nayib Bukele has bet on the growth of cryptocurrency by passing industry-friendly laws and using public money to bet on the price of Bitcoin. Although Bukele has said that El Salvador has no money tied up in FTX, his plans to woo the crypto industry and speculate in Bitcoin seem increasingly doomed in the wake of the Bitcoin crash. the company with growing doubts about the long-term economic viability of the cryptocurrency, which had already been plagued by criticism and questions about its usefulness before FTX’s bankruptcy.
Although Bukele remains very popular in El Salvador, its government’s adoption of the cryptocurrency has been largely unpopular. In September 2021, protests greeted the enactment of a law that made Bitcoin legal tender. Commercial developments designed to attract cryptocurrency investors have also been met with howls of dissent after displace poor Salvadorans.
Overall public approval of the Salvadoran government could change dramatically in January, when the country will have to pay off $667 million in debt it is finding it increasingly difficult to finance. This week, in an apparent attempt to pressure creditors into agreeing to new terms, Salvadoran Vice President Felix Ulloa claimed the Chinese government was interested in buying the country’s debt. The Chinese Ministry of Foreign Affairs replied saying he was unaware of such a plan. Analysts estimated that the Salvadoran public is currently down $70 million on government bitcoin purchases.
Meanwhile, retail investors with direct exposure to FTX seem to include many people around the world with little downside. Studies showed that the cryptocurrency industry – similarly to subprime mortgages and payday loans – has attracted people to the United States who are overpriced conventional financial services. The market has thrived in recent years under false promises of instant wealth with the blessing of legislators and regulators who failed to enforce consumer protection, ignoring centuries of lessons learned about speculative frenzies dating back to the Dutch Tulip Mania of the 1630s.
Many policymakers and regulators who have encouraged the hands-off approach that has allowed crypto to flourish have been particularly taken with FTX. Over the past few years, the company’s founder and former co-CEO Sam Bankman-Fried have been regularly invited to appear before Congress to testify on behalf of the industry, and have done $40 million in campaign donations this election cycle, primarily to Democrats. Ryan Salame, the other co-CEO of FTX, also gave generously to Republicans, granting them $24 million in campaign donations this cycle.
The total amount of retail losses is not yet clear. More will be known in the coming weeks as insolvency administrators tally the claims made against the company, which filed for Chapter 11 bankruptcy on Nov. 11. But working and middle class retail investors around the world have already told reporters they can’t access the money they hold on FTX – among thousands each held by a technician in Alabama and a musician in Thailandto a whole”life savings” that a man in Morocco said he was trapped on the platform.
To add insult to injury and create more doubt for those worried about getting their money back, an apparent hack of remaining digital wallets on FTX has emptied hundreds of millions of dollars users with frozen funds. The Securities and Exchange Commission, the Commodity Futures Trading Commission and the Department of Justice all said they are investigating alleged wrongdoing related to the collapse of the exchange. The House Financial Services Committee announced Nov. 16 that it would soon hold a hearing on the matter, and the Senate Banking Committee will follow, a spokesman for the latter said. Truth.
“The SEC, DOJ and CFTC have announced investigations into the bankruptcy of FTX and the misconduct of Sam Bankman-Fried,” the Senate Banking Committee spokesman said. “The role of the Banking and Housing Committee is to understand the structure of the cryptocurrency industry, as well as to consider the broader issue of the impact of cryptocurrencies on consumers, our markets and the community. ‘economy.” The spokesperson noted that the committee is “working to schedule a hearing and details are forthcoming.”
FTX’s crash was so sudden, unexpected, and characterized by accusations of wrongdoing that analysts and investors questioned the long-term viability of the entire cryptocurrency industry afterward. Yahoo finance editor-in-chief Brian Sozzi says the industry “now faces a major confidence deficit” due to bankruptcy. And like the the wall street journal noted on November 17, it’s “increasingly hard to believe that the future of crypto resembles its prosperous past, with higher interest rates, crypto prices hovering around multi-year lows, and FTX customers wondering s ‘one day they will get their money back’. Bitcoin price fell 25% after FTX pulled back, the paper points out.
Another regulator, the Consumer Financial Protection Bureau (CFPB), has provided insight into the pain that will likely arise as the bankruptcy process progresses. On November 10, the agency published a report on the rise in complaints to CFPB officials about cryptocurrency, which has accompanied the growth of the industry in recent years. The study noted that a clear plurality of complaints allege fraudulent activity and highlighted the grievances of customers of two crypto-finance companies that went bankrupt earlier this year, Celsius and Voyager, the latter of which falsely presented its accounts as being protected by the Federal Deposit. Insurance company.
In a footnote, the office also cited letters sent to bankruptcy judges by those who lost money in businesses. The testimonials detail anxiety, despair, unpaid bills and thoughts of self-harm. In a separate footnote, the officials also reported how in August the FDIC sent a cease-and-desist letter to FTX saying the company also misrepresented its accounts as federally insured. .
Stories about FTX’s downfall are also likely to surface soon on the CFPB’s public complaints database, which releases filings 15 days after the subject of the complaint is given an opportunity to respond. If the company does not respond, the agency does not publish the complaints, but forwards them to the Federal Trade Commission, which investigates deceptive marketing practices. The agency also makes complaints “available to federal and state agencies through the CFPB’s secure government portal,” a spokesperson said. Truth.
Tragically, the situation is something satirists warned of months ago. In April, for example, before the global cryptocurrency market plunged sharply, onion published an article with the title: “The man who lost everything in crypto just wishes several thousand more people had warned him.”
But, unfortunately for those with money stuck in FTX, the safety and soundness of the financial system is not the responsibility of onionthe editors. Nor is it the responsibility of individuals seeking to make their meager savings profitable in a world currently marked by a crisis in the cost of living. It is the duty of regulators and legislators, both Democrats and Republicans, who have chosen, once again, to sacrifice the working class on the altar of capital accumulation.