If
you watched the baseball World Series last month, you might have noticed the
umpires sporting the letters “FTX” on their uniforms. Or maybe you’ve seen an ad for “FTX” that
featured Tom Brady, Steph Curry, or another celebrity.
FTX
is (or maybe at this point I should say “was”) a cryptocurrency exchange based
in the Bahamas that rocketed to fame and apparent success thanks to its
flamboyant 30-year-old founder and CEO, Sam Bankman-Fried. His business model seems to have been to
hobnob with big shots in the financial world, propose and institute bold—if
unwise—practices for his operation, freely throw money around, and court
endorsements from celebrities in exchange for a stake in his company—all while
acting the part of the offbeat MIT-graduate whiz kid, dressing in khaki shorts and
tennis shoes while hosting cocktail parties on the beach and meeting with the
more staid colleagues in the financial industry.
Perhaps
it was that iconoclast image, the brilliant rebel reputation, that attracted
all the followers—and investors—to his company.
He pitched a new approach to the futures market at the Futures Industry
Association (FIA) meeting last year.
Evaluated objectively, his proposal bypassed the structure that is meant
to protect investors and thereby introduced new risks to the market. But that didn’t seem to faze many or even
most of the people listening to his pitch.
He was offering a “gateway to the crypto world” (in the words of the Washington
Post), with FTX operating like a bank in that it maintained customer
accounts, exchanged currencies, and made loans and other investments with
investors’ money. But it operated
without the tough regulations and oversight of a normal bank or exchange.
As
Adam Levitin, a Georgetown University law professor and expert on
cryptocurrency issues astutely observed, “People invested billions in an
unregulated financial institution based in a Caribbean island. How could this end well?”
Now
FTX has collapsed, Bankman-Fried has lost his entire $16 billion fortune, the
money of nearly one million investors has disappeared, and several celebrities
are facing lawsuits for their part in hyping what many are saying amounted to a
Ponzi scheme.
I
can’t say that I have a lot of sympathy for the people suing those
celebrities. Well, maybe for some of the
small-time investors. But how many times
does this have to happen; how many too-good-to-be-true investments have to fold
in bankruptcy; how many celebrities whose fame is in sports, fashion, or just
about anything other than finance, will endorse an investment that will
supposedly make us rich but turns out to be fool’s gold, before we learn the
lesson?
As
with nearly any bad investment, there were people who were raising red flags
about FTX, including the FIA itself.
Maybe not waving those flags as vigorously as they could or should have,
but they saw problems with the model on which FTX was based and steered clear
of it. But the hype, the novelty, the
celebrity….it overcame most hearers’ good sense. According to the New York Times some
big firms like BlackRock backed FTX. And
Bloomberg flatly wrote, “Many sophisticated finance pros were duped by
Bankman-Fried’s wacky charm.”
Common
sense, everyone. As the saying goes, “If
it sounds too good to be true, then it probably is.” And the rule applies not only in high
financial circles but in our everyday decision-making. Our culture seems to always steer us to be in
pursuit of the big—and fast—buck.
Instead of slow-and-steady investing and seeking sound advice, we let a
Victoria’s Secret model or a sports superstar tell us where to put our money. Or maybe we should listen to them—then
do the opposite of what they suggest. I
expect that would work out much better for us in the end.
Until next
time,
Roger
“For where
you have envy and selfish ambition, there you will find disorder and every evil
practice.” James 3:16 NIV*
*Scripture quotations taken from the Holy Bible, New
International Version® NIV® Copyright © 1973,
1978, 1984, 2011 by Biblica, Inc.™
Used by permission. All rights
reserved worldwide.
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