Billionaire Mark Cuban isn’t giving up on crypto, despite the implosion of FTX, one of the world’s largest cryptocurrency exchanges.
However, Cuban says former FTX CEO Sam Bankman-Fried should be “afraid of going to jail for a long time,” in an interview with TMZ.
“I talked to the guy and thought he was smart,” Cuban told TMZ. “I had no idea he was going to take other people’s money and put it to his personal use.”
Bankman-Fried said on Wednesday he “didn’t ever try to commit fraud” and was “shocked by what happened,” while speaking to CNBC’s Andrew Ross Sorkin at the DealBook Summit. He admitted he “didn’t do a good job” and “completely failed on risk.”
Alameda research, the trading firm founded by Bankman-Fried, was borrowing billions of dollars from FTX users’ accounts and trading those funds without their knowledge, CNBC reports. FTX also drastically underestimated how much money it would need to keep on hand in case a user wanted to cash out.
Regulators require trading platforms to hold enough money to match what customers deposit. And trading customer funds without their explicit consent is illegal, according to U.S. securities law.
Now, Bankman-Fried, along with celebrities like Tampa Bay Buccaneers quarterback Tom Brady and Golden State Warriors guard Stephen Curry, have been named in a class-action lawsuit filed on Nov. 15 in Miami.
The lawsuit alleges that FTX’s U.S. customers have lost about $11 billion and accuses the exchange of enlisting celebrities to target “unsophisticated investors from across the country.”
FTX and Bankman-Fried did not immediately respond to requests for comment.
FTX is based in the Bahamas, which would normally complicate this type of lawsuit, but it’s possible to overcome since most of the defendants are located in the United States, says Yuliya Guseva, the head of Rutgers University’s fintech and blockchain research program.
Guseva says more crypto regulation is needed to prevent another FTX-like downfall.
As the lawsuit makes its way through the court system, the collapse of FTX could have a domino effect on the overall crypto industry.
In its wake, distressed cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy on Nov. 28. In the filing, the company listed an outstanding $275 million loan to FTX US.
Overall, more than $1.3 trillion of value has been wiped off the crypto market this year, and the FTX collapse has only worsened the situation, according to analysts.
“FTX may be the falling domino that finally makes cryptocurrency un-investible for ordinary people,” says James Royal, principal reporter at Bankrate. “If new money ceases to flow into crypto assets, [crypto’s] meteoric rise cannot continue.”
Investors should understand that, unlike stocks and bonds, cryptocurrency’s value isn’t backed by an underlying asset, says Royal. This is why prices are subject to erratic and unpredictable fluctuations and downfalls.
“Crypto goes up only if more people move money to the virtual asset, so it relies on investor confidence to keep the game moving,” he says.
Investors should also research how an exchange platform holds their assets, or they “could be subject to the same wipeout experienced by FTX’s clients,” says Royal. “If you continue to see cryptocurrency as a viable investment vehicle, you have to understand the exact nature of the exchange’s legal obligations to its clients.”
As for Cuban, he plans to continue investing in crypto and says it’s important to “separate the signal from the noise.”
“There’s been a lot of people making a lot of mistakes, but it doesn’t change the underlying value,” he told TMZ.
Cuban believes that smart contracts, one of the key underlying technologies that allow crypto transactions to be made, will have a significant impact in creating valuable applications that have can be used by everyone.
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