Irish Examiner view: Time to act on crypto speculation

Cryptocurrency empire FTX was flattened as investors ran to pull out their funds before they became worthless

Sam Bankman-Fried's FTX empire was valued at $32bn (€30.9bn) earlier this year. File picture: Ting Shen/Bloomberg

There was a long-standing joke in a TV comedy series about a nightclub where the owner would tell his doubting managers and backers: “I have seen the future, and it’s garlic bread. I have tasted it.” 

This became a widely-quoted, all-purpose, shorthand description for a gamechanger, something which would irrevocably sweep away old certainties. And in recent years much of the same messianic fervour has been applied to the advent and implementation of cryptocurrencies, a sector of trading which is volatile, high risk, and largely unregulated.

Just how high-risk can be seen by the rapid crash and burn of the FTX empire of 30-year-old Sam Bankman-Fried (the surname is not a clever play on words). 

Earlier this year, FTX was valued at $32bn (€30.9bn). Now it has filed for bankruptcy protection caused by a very old-fashioned thing, a run by investors and users desperate to pull their funds before they became worthless. The company was only founded in 2019 and had become the world’s second largest digital currency exchange. 

It spent millions funding the presidential campaign of Joe Biden and was second only to George Soros in its generosity towards the Democrats. Earlier this year Bankman-Fried shared a platform with former UK prime minister Tony Blair and ex-US president Bill Clinton at a “Crypto Bahamas” event in Nassau.

Flying high in September, the FTX logo was brandished proudly on an umpire's jacket at a Minnesota Twins baseball game in Minneapolis. File picture: Bruce Kluckhohn/AP

The collapse of FTX has been described as cryptocurrency’s “Lehman moment”, a dark reference to the failure of the Lehman Brothers bank in 2008 which marked the world’s acceleration into financial crisis. It is the third, and most serious, failure in the sector in the past year.

Just over 12 months ago it was obvious that placing money into crypto speculation was a dangerous pastime. It could deliver eye-watering growth but could also do the other thing. 

At that time, we wrote that “this confluence of finance and technology companies into new entities which are not banks, but which possess the power to shock the economy in ways that many people will not understand, is a tangible danger which is under-debated in the Republic, particularly when some nations want to place themselves at the heart of this new, so-called, economy.

“Having endured the bank-led crash of 2007-8, the pandemic, and the various cyberattacks which have damaged the country, there is not an inexhaustible supply of patience for dealing with future challenges generated, but not independently scrutinised, from the fintech sector.”

If anything, that patience has worn even thinner. Governments and exchequers take note. And act.