Sam Bankman-Fried, founder and chief executive officer of FTX Cryptocurrency Derivatives Exchange, during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York, US, on Wednesday, Aug 17, 2022. (Jeenah Moon/Bloomberg via Getty Images)
Crypto has an Enron-sized scandal that threatens to completely undermine the trust proposition for its existence, regardless of Sam Bankman Fried's mea culpa tour.
Why it matters: The house of cards built by Bankman-Fried has drawn several parallels, including Enron, Theranos, Bear Stearns, Lehman Brothers and Madoff Investment Securities.
The big picture: FTX's "first day declaration" in bankruptcy court affirms the picture that’s emerged over the last month.
Like Theranos/Madoff/Lehman, the principal spark for FTX’s downfall was its founder's staggering ineptitude and dishonesty, and the failure of anyone around him to notice (or at least care).
Yes, but: What is specific to crypto is an untested, interconnected, and interdependent ecosystem that's ripe for contagion and dramatic spillover effects. And since this fuse was lit, the fire is spreading faster, and wider.
What they're saying: FTX's downfall "will radically transform the crypto ecosystem, further shaking trust and raising doubts around its ongoing prospects," analysts at Moody's wrote last week.
Flashback: Crypto was birthed in the glum aftermath of the 2009 crisis; its principal selling point was its decentralized nature.
The bottom line: The crypto industry was already facing a trust deficit. And this has set it back far.
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