The dramatic collapse of FTX – the world’s biggest cryptocurrency exchange – on Thursday 10 November has been likened to the 2008 financial crisis: the equivalent of JP Morgan falling apart in a single day. In January, the Bahamas-based company had been valued at $32bn (£267bn) and FTX’s 30-year-old billionaire chief executive Sam Bankman-Fried was seen as the next tech whiz-kid. As of this month, it has filed for bankruptcy. The amount owed to investors is as much as $8bn (£6.6bn).
However, while this may feel like a historic shock, most experts have argued for years that a crypto collapse like FTX’s was coming. Now that it has, the losers aren’t just wealthy investors, crypto founders, or celebrities who pumped money and clout into this company, but also millions of ordinary people whose lives – and livelihoods – have become tied to this thing that was built to fail.
Since cryptocurrency was first invented, sceptics have desperately tried to warn investors of the extreme risks associated with investing and the inevitability of crashes like this one. “It’s a casino that’s wrapped in all of these lies,” Stephen Diehl, a long-time crypto critic and author of Popping the Crypto Bubble, told the Financial Times, “When you tear back those lies, what’s left looks like a net negative for the world.”
Cryptocurrency has been consistently described as a scam and even as a Ponzi scheme, but the past year in particular has seen these warnings borne out. In spring this year the crypto market lost $1trn in value – a moment that even unnerved some crypto-evangelists. But much of the crypto world continued to invest, despite all obvious signs of impending disaster.
In its early years, crypto was largely an obsession for a specific niche of people who happened to be both wealthy and very online; a thing that was hawked by nerds and promoted by billionaires and tech bros (perhaps most famously by Elon Musk).
However, the past two years have seen a boom in campaigning to make crypto investing accessible to the average person – marketed as a savvy, get-rich-quick investment that people could cleverly get in on the ground floor of, despite all evidence showing the very opposite.
We saw Paris Hilton promoting her NFT (non-fungible token, a cryptocurrency investment) on TV shows such The Tonight Show with Jimmy Fallon, one of America’s most popular talk shows.
Kim Kardashian was fined more than $1m this October by the Securities and Exchange Commission (SEC) for promoting a crypto asset on her Instagram page (she has agreed to not do so again for the next three years). FTX paid for a Super Bowl television ad, and pumped tens of millions of dollars into certain candidates running in this month’s midterm elections.
Since FTX’s collapse, investors have filed a lawsuit against celebrities who appeared in advertisements for the exchange, who include the likes of Gisele Bundchen, Larry David, Tom Brady, and Naomi Osaka. The US Federal Trade Commission has said the rise in crypto scams more broadly is in large part due to these celebrity endorsements.
Now, with FTX’s fall, there are millions of people who have lost huge amounts of money that they believed was securely invested. In the past two weeks, social media has been awash with people who have lost thousands in the collapse, desperately searching for advice on Twitter, Reddit, and Instagram on how to get their money back.
“Honestly, when I heard about it, I laughed,” Thomas*, a 40-year-old software developer living in the East of England, told i. He has been investing in crypto for years and lost £8,500 in the FTX collapse and said, despite making regular investments into his FTX account over the course of months and also investing in crypto elsewhere, he knew that it was risky.
“I don’t know a lot about FTX as a company, nor Sam Bankman-Fried. I purposefully haven’t read any recent articles about either,” he said. “There’s a part of me that wrote it off as soon as I transferred it across.”
Others did not want to answer detailed questions, but merely lamented the state of their personal finances, many saying they hadn’t just lost thousands, but that they had lost most of their life savings.
One told me the financial devastation was only made harder by everyone “treating [the FTX collapse] like a joke”. Because a great crypto crash was so widely predicted, social media has been dominated by people who have watched crypto’s rise with morbid fascination – now gleeful to see their predictions come to life in the most spectacular way.
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Another FTX investor told me they didn’t see the point in seeking advice online because the few times they had tried only resulted in replies calling them “a fool”.
Yet the impacts of losing so much money can be serious. “It will have a massive impact on some people,” Thomas said. “I have had friends call me or come to me while contemplating suicide.”
However, he says he is “comfortable” enough to feel comparatively placid about his own losses. “I struggle to understand the mentality of anyone who’d invest their life savings in something like [FTX].”
Since Thursday 10 November there have been countless stories of public entities and pension funds that have lost hundreds of millions after investing eye-watering sums with FTX – most famously, the Ontario Teachers’ Pension Plan, which invested more than $95m (US).
There is some schadenfreude to be enjoyed when celebrities and wealthy crypto investors lose painful amounts of money to a scam they themselves promoted. However, the real losers in FTX’s collapse, and in crypto’s collapse more broadly, will never be those at the top, but the millions of normal people they convinced to board a visibly sinking ship. The rich will bounce back, rising to the top again. The people robbed of their life savings sitting at the bottom won’t be so lucky.
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