Buy $100 worth of crypto and get a bonus $10

  • Trade crypto and digital assets
  • Significant sign-up bonuses
  • The most trusted finance platform

Disclaimer: eToro USA LLC; Investments are subject to market risk, including the possible loss of principal. Your capital is at risk. This ad promotes virtual cryptocurrency investing within the EU (by eToro Europe Ltd. and eToro UK Ltd.) &USA (by eToro USA LLC) which is highly volatile, unregulated in most EU countries, no EU protections & not supervised by the EU regulatory framework. Investments are subject to market risk, including the loss of principal.

  • Home
  • >News
  • >Was FTX Built to Fail? Why Speculation Continues to Run Rampant

Was FTX Built to Fail? Why Speculation Continues to Run Rampant

The fall of FTX was unlike anything crypto had ever seen before. From how it quickly tumbled from the upper echelons of the space to the piquant details surrounding its ex-CEO Sam Bankman-Fried, it was a drama ripe for TV.

Nearly four months down the line, the drama shows no signs of stopping. If anything, it has only intensified as we march on to October 2, 2023, when SBF is scheduled to go to trial after pleading not guilty to eight criminal charges in his first court hearing in early January.

The unusual manner of the exchange’s windup has lent itself to all natures of wild conspiracy theories. One of the juiciest theories is that SBF was a Trojan horse placed by mysterious powers to bring crypto down. This theory is part of a bigger, more damning one: FTX was built to fail.

The question is, did those powers anticipate this? This piece explores the “crypto was built to fail” conspiracy theory in depth. Just be sure to take each section with a huge grain of salt.

Sam Bankman-Fried FTX

The Rationale

Proponents of this conspiracy theory believe FTX was built to fail from the get go to pave the way for crypto regulations. They believe highly-placed players within the United States government are behind the founding of the exchange, its flying too close to the sun, and its eventual burning.

Like any conspiracy theory worth its salt, this one has a kernel of truth: the relationship between the US and crypto was always uneasy. The tech’s advocates believe governments shouldn’t get to control the financial aspect of people’s lives. Crypto aims to wrest that power and hand it back to the common folk.

It’s this quality of the currency that governments fidget over. From Nigeria to China, some countries have outright banned the digital asset class (even though citizens have circumvented such bans).

While every country stands to lose in the face of crypto, the US has the most to lose. The US dollar is the most powerful currency and holds the coveted status of being the global reserve currency. If crypto, which eliminates intermediaries and is cheaper to send, gained dominance, it would spell bad news for the dollar.

And yet, as a country that prides itself as a beacon of innovation, the last thing the US wants to do is regulate the industry to oblivion, or at least appear to do so. This is the part the conspiracy theorists have run away with.

Per their thinking, some sketchier elements from the exchange’s implosion make it seem as if FTX was built to fail.

Let’s explore those elements.

#1. FTX Donated to the Democratic Party

In the furor, after it leaked that FTX was insolvent, it emerged that SBF had donated millions of dollars to Democrats and, notably, to the Joe Biden campaign.

SBF would later reveal he also donated to Republicans, but the damage was already done. Theories flew that the former crypto boss was in bed with the establishment. That his mother, Barbara Fried, had political connections (as a board member of the political donor organization Mind Gap) only fanned the flames.

In addition, SBF had calculated an image of the agreeable crypto ambassador to Washington — appearing in Congress to testify in favor of crypto regulations and cozying up to the political class. That did not win him any friends in the industry. Crypto execs typically keep politicians at arm’s length, and they felt betrayed.

Such feelings of betrayal boiled to the surface when Binance sold their FTX tokens — which essentially triggered the exchange’s collapse. CZ, Binance’s CEO, tweeted regarding the selloff: “We gave support before, but we won’t pretend to make love after divorce…we won’t support people who lobby against other industry players behind their backs.”

In short, the depths of the unholy alliance between Bankman-Fried and Washington raised eyebrows and further stoked the conspiracy theory.

#2. SBF Improperly Lent FTX’s Customer Funds to His Crypto Hedge Fund

One of the most stunning revelations in the wake of the exchange’s fall was Bankman diverted customer funds to crypto hedge fund Alameda — an affiliated company, to fund risky market bets.

This move, which Bankman himself characterized as a “poor judgment call,” set the exchange for failure way before its fictional balance sheet was made public.

The Alameda thing was hard for many to grasp. It seemed nakedly reckless, overambitious, and, accurately, in poor judgment. All that in the face of scrutiny that crypto businesses are usually under.

For example, Coinbase — US’ largest exchange, is known to play it safe and avoid running afoul of regulators. Binance has hired former US government figureheads to guide it on how to stay on the sweet side of US regulators (with varying results).

The point is this: those exchanges would find it unthinkable to do something as dumb as illegally shuffling customer funds. What, then, was SBF thinking? Or is there more than meets the eye?

#3. Mainstream Media Treated the FTX Aftermath With Kid Gloves

It wasn’t lost on some observers how gingerly the mainstream media covered the FTX fallout. Publications like the New York Times, Forbes, Reuters, and The Economist were accused of writing “puff pieces.”

High-profile people such as Coinbase CEO Brian Armstrong, Kraken founder Jesse Powell, and Twitter owner Elon Musk led the chorus. “Why the puff piece @nytimes”? Musk quizzed, while Armstrong lamented, “NYT is writing puff pieces on a criminal.” Powell accused the MSM of “betraying their duty.”

Most people expected hard-hitting, take-no-prisoners coverage. Anything less was “politically motivated“, “partisan cuckolding“, or, more tellingly, “odd.” And it only fueled the conspiracy. Indeed, some people remarked that they weren’t conspiracy theorists before — but with how they thought the media handled the saga, they were made one.

Closing Thoughts: FTX Fallout Will Be Felt for Years

As with any remarkable public fallout, conspiracy theories are wont to spring up. FTX more than fits the bill of such a fallout.

No one knows the exact deal with what led us here. Maybe one day the cryptosphere will make sense of it. For now, the conspiracy theories continue to garner considerable attention, no matter how outlandish the claims.

Article Tags
Hope Mutie

About the Author

Hope Mutie

Hope Mutie is a professional writer and editor whose interests include fintech, cryptocurrency, and blockchain. She engages with crypto audiences by curating content that’s fun-to-read, educational, and offers unmatched value. Hope is part of the brilliant team at Go Full Crypto – a podcast and service that enables your transition into crypto.

Back To Top