He was hailed as the savior of cryptocurrencies.  Now he needs billions to save |  CBC News

He was hailed as the savior of cryptocurrencies. Now he needs billions to save | CBC News

Last week, California billionaire Sam Bankman-Fried was touted as a key figure in cryptocurrency — even a savior. Today, amid a series of apologetic tweets, he said “I’m disappointed” after his cryptocurrency exchange bled billions of dollars.

Its FTX exchange is now struggling to raise $9.4 billion from investors and competitors alike as customers rush to withdraw their funds.

Many people trusted FTX as a place to buy tokens or cryptocurrencies like Bitcoin.

Industry watchers now say its spectacular fall may be the catalyst that forces governments — including Canada’s — to crack down on cryptocurrencies.

Trouble arose when the rival owner of the world’s largest exchange, Binance, questioned the stability of FTX on Twitter. This sparked a three-day panic that cost FTX an estimated $6 billion.

Binance chief Changpeng Zhao then backed away from a proposed buyout of its second-tier rival on Wednesday, citing regulatory concerns, according to the New York Times.

This sent FTX into a tailspin.

Bankman-Fried said he was in talks with others about another bailout deal, but made no promises.

“I’m sorry. That’s the biggest thing. I did it and I should have done it better.” he wrote on Twitter.

What exact mistakes were made remains unclear.

But crypto experts say that investors’ money, which should be “liquid”, is not.

According to Samson Mow, CEO of Pixelmatic and JAN3, a new bitcoin technology company, FTX faced increasing legal and regulatory threats before withdrawals were frozen.

Binance CEO and founder Changpeng Zhao (left) meets with El Salvador’s President Nayib Bukele on March 24 in San Salvador, El Salvador. Zhao was briefly ready to buy out FTX. (Press Secretary of the Presidency/Reuters)

Mow says the FTX explosion has a familiar feel, although digital assets like bitcoin and ethereum haven’t been an issue.

He says the exchange created tokens called FTTs that were used to hold value. FTT was the backbone of FTX, so when its value dropped, users tried to get out.

Mow says the U.S. Securities and Exchange Commission is investigating, and it appears client money may have been improperly used to help FTX affiliate Alameda Research dig itself out of a $10 billion hole.

People who bought bitcoins or other currencies through the exchange are now unable to withdraw them.

Mow says bitcoin is reliable, but exchanges that rely on tokens like FTT as collateral are built on a house of financial cards.

He said users know the risk of being “lazy” and leaving assets unclaimed at the exchange.

Binance and FTX logos are visible in this image. Bankman-Fried blamed itself for FTX’s losses, though it’s unclear exactly what went wrong. (Regarding Ruvic/Reuters)

“You bet on a casino that went bankrupt – and now you’ve lost your money,” Mow said.

He says people who didn’t withdraw their digital assets and store them in their own wallets can’t access them now because FTX used FTT as collateral and those tokens are now worthless, he says.

“There’s an old saying – not your keys, not your coins. It’s not a new lesson. People just don’t learn. They play – and they got what they deserved.”

The implosion of FTX, which was recently valued at $32 billion, is just the latest bad news for digital asset investors. Bitcoin prices are less than a third of what they were at their peak in 2021, before the big crash last fall.

But Bankman-Fried was seen as an influential player, someone who “worked closely with regulators” to try to regulate the space, said Ashley Stanhope of Ether Capital Corp., a public company focused on ethereum and a founding member of the Canadian Web3 Council, a group working with governments to build better investor protection.

He also spent millions to help other companies and claimed to be an advocate of effective altruism, a movement that advocates charitable giving to protect the future of humanity.

An advertisement for Bitcoin is displayed on a street in Hong Kong on February 17. (Kin Cheung/The Associated Press)

Her interpretation of his apology is that he made “genuine mistakes. It doesn’t sound like he was trying to defraud investors or make them feel bad,” she said.

Stanhope says this situation damages the industry’s credibility and that he fears regulators will now “paint all cryptocurrencies with the same brush.”

FTX investors include the Ontario Teachers’ Pension Plan (OTPP), which put more than $126 million into the exchange between October 2021 and January 2022.

In a statement on Thursday, OTPP said the “uncertainty” at FTX would have a “limited impact” on the pension plan because the investment was less than 0.05 percent of its total net assets.

As for the FTX losses and how they will affect the industry, Stanhope admits that it is a challenge and that Bankman-Fried’s downfall is likely to shift the crypto landscape.

“The implosion of FTX is likely to change investor attitudes,” she said.

“We will likely see more users withdraw their assets from centralized exchanges and rely on their own wallets,” she said, until exchanges become more secure and transparent.

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