A $30 million penthouse to an 80-square-foot jail cell…
That’s the grim journey former cryptocurrency boss, Sam Bankman-Fried, made on Monday.
You may have seen it on the news…
At about 6 p.m., Bankman-Fried (or “SBF,” as he’s known) walked out of his flashy penthouse in the Bahamas where he’s based.
He was wearing a blue suit, a white shirt… and a pair of handcuffs. Flanking him were officers from the Royal Bahamian Police.
The 30-year-old former multibillionaire is now in Fox Hill, the island’s only prison, where he’ll sweat it out until he’s extradited to the U.S.
And it won’t be a pleasant stay…
Fox Hill ranks among the worst prisons in the world. One report detailed how inmates were removing human waste by bucket and living with rats.
This dramatic change in accommodation comes after U.S. federal authorities charged him with a raft of fraud-related offenses.
And they stretch all the way back to his founding of cryptocurrency exchange, FTX, in 2019.
This puts to rest the rumors that SBF had shielded himself from prosecution thanks to millions of dollars in political donations.
It also runs counter to the narrative he’s been peddling on Twitter, and in interviews, that he simply “screwed up.”
Most important, it’s proof of what world-renowned crypto investing expert Teeka Tiwari has been saying since FTX went belly-up.
Its collapse was NOT a crypto problem. It was a greed problem.
And folks who take advantage of the fire sale prices on offer because of the chaos SBF has created stand to make life-changing gains over the long run.
We’ll get to that. First, let’s take a closer look at that rap sheet…
SBF “orchestrated a massive, years-long fraud”…
That’s according to the Securities and Exchange Commission (“SEC”).
It’s the main U.S. stock market regulator. And it claims SBF was “engaged in a scheme to defraud equity investors in FTX” from May 2019 through November 2022.
Over that time, the SEC says he was “also defrauding the platform’s customers.”
SBF bought the domain name for FTX in May 2019. So, the SEC believes he was engaged in fraud for the entire existence of the company.
I won’t slow us down with all the details. But it’s worth pausing on some of them. Because they show how brazen he was (my emphasis added)…
Throughout this period [May 2019 to November 2022], Bankman-Fried portrayed himself as a responsible leader of the crypto community. He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible. Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations. […]
Despite the fact that Alameda had, by this point, already taken billions of dollars of FTX customer assets, it was unable to satisfy its loan obligations. Bankman-Fried directed FTX to divert billions more in customer assets to Alamedato ensure that Alameda maintained its lending relationships, and that money could continue to flow in from lenders and other investors. […]
But Bankman-Fried did not stop there. Even as it was increasingly clear that Alameda and FTX could not make customers whole, Bankman-Fried continued to misappropriate FTX customer funds. Through the summer of 2022, he directed hundreds of millions more in FTX customer funds to Alameda, which he then used for additional venture investments and for “loans” to himself and other FTX executives.
That’s just the tip of the iceberg…
SBF also faces charges of wire fraud against customers and investors, securities fraud, and money laundering.
That could add up to 115 years in prison…
A life behind bars, in other words.
It sounds like a lot. But a single count of wire fraud carries a maximum sentence of 20 years.
And that’s just one of the eight charges against him.
We can also look at what happened in cases with similar charges.
Wall Street Ponzi scheme mastermind Bernie Madoff pleaded guilty to 11 felonies. They included three SBF is charged with – fraud, securities fraud, and money laundering.
A judge sentenced Madoff to 150 years in prison.
Or take James Paul Lewis Jr. Over 20 years, he collected $311 million in funds for a Ponzi scheme he ran out of his California firm, Financial Advisory Consultants.
He got 30 years for pleading guilty to money laundering and wire fraud. And $311 million is peanuts compared with the billions of dollars SBF allegedly embezzled.
This has left crypto sentiment at an all-time low…
That’s going by a recent CNBC All-America Economic Survey.
It revealed that just 8% of Americans viewed cryptocurrencies positively. That’s down from 19% in March.
And 43% of the American public views cryptos negatively. That’s up from 25% in March.
And although I’m bullish on crypto, I understand why people feel this way.
FTX isn’t the only centralized crypto-related business to collapse. Crypto lenders BlockFi and Celsius… as well as crypto hedge fund Three Arrows Capital… also went belly-up this year.
So did popular stablecoin TerraUSD.
That’s a heck of a lot of drama and heartache.
But the crypto bears are missing the bigger picture…
Through it all, bitcoin (BTC) and Ethereum (ETH) have been working without a hiccup.
So have hundreds of other crypto projects.
In fact, decentralized exchanges – which allow you to exchange your coins on the blockchain without any middlemen – have seen their trading volumes go up.
Meanwhile, Wall Street institutions such as Fidelity and BlackRock are moving into crypto.
They see the same future as Teeka does… We’ll trade stocks, bonds, real estate deeds, and just about every other financial asset, across blockchains without the need for pricey and potentially corrupt middlemen.
We’ll also use blockchains to buy fractions of iconic artworks and collectibles… borrow and lend money… power play-to-earn games… build censorship-resistant social networks… and run the digital economy that will grow inside the Metaverse.
In short, we’ll transition from the centralized middleman economy we have today to a decentralized service economy.
And we’re still in the early innings of this megatrend.
If you compare it with the growth of the internet, we’re somewhere around 2000 and the bursting of the dot-com bubble.
That was a massive wipeout in prices after a mania. But it didn’t put an end to the internet. It marked the beginning of a new phase of growth we now know as Web 2.0.
We figured out video and audio streaming… created social networks… and then rolled it all out over mobile.
That doesn’t mean the bear market in crypto has bottomed…
As Teeka has been warning, we still don’t know the full extent of the damage FTX has done to its counterparties.
And we don’t know how much leverage these counterparties were using.
We could still see further bankruptcies… and even more outright frauds.
So, if you already own crypto, stay the course. The short-term picture is murky. But the long-term trend of innovation is intact.
And if you’re not yet invested, keep an eye on this market.
Crypto is probably the most hated asset class in the world right now. It’s selling at steep discounts as a result. Bitcoin and Ethereum are each down about 75% from their all-highs last November.
That ranks as the fifth worst wipeout going back to when bitcoin started trading 13 years ago.
But when all the selling is wrung out of the market… they’ll begin new uptrends. And that will be a great time to jump back in.
Keep an eye out for more from Teeka and our other experts on that in future updates.
In the meantime, sit tight… stay the course… and be thankful you’re not facing living out your days behind bars like SBF.
Regards,
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Chris Lowe
Editor, The Daily Cut