FAST FIVE: How Fed Easy Money Fueled The FTX Crypto Collapse

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FTX's collapse has exposed just how little due diligence is actually taking place among investors who are apparently willing to put large amounts of cash in whatever place looks like the hottest new thing and promises-without convincing evidence-big-time returns.  Indeed, FTX seems to be a textbook example of how many investors are easily hoodwinked by media narratives about the latest investment genius who has magically discovered some new way of delivering unprecedented returns.  The “genius” in this case is Sam Bankman-Fried, a 30-year old MIT grad who ran FTX into the ground and had placed control of his clients' money in the hands in the small number of friends with virtually no real experience, knowledge, or scruples about how to responsibly manage funds.

Up until this year, this inevitable economic decline was repeatedly delayed because many problems and inefficiencies in a business can be papered over when it's always possible to just borrow more and pay off old debts with new cheaper debt.

Clients were “depositors” of a sort.

Meanwhile, large crypto exchange Binance began to sell its own considerable holdings of FTT.

The can would have been kicked down the road yet again.  But as it was, there simply wasn't enough liquidity anymore for the scam to continue.  Thus, we find that leveraged crypto faces many of the same problems that other highly leveraged high-risk ventures face.

Categories: ZH