Deaf financial experts explain FTX collapse and future of crypto
Callie Frye: This is how you sign “crypto?”
Dina Rae Padden: Yes, crypto.
Callie: You may have seen many news articles about the collapse of FTX, a cryptocurrency company. It may be confusing what the story is. I feel the same way so I reached out to two deaf financial experts with questions. The first is Charles Sterling, who is an investment advisor and a representative for DeafInvest. He knows a lot about crypto because it is necessary for his work to pay attention to various markets and new investment opportunities, which include cryptocurrencies. The second is Dina Rae Padden, who owns a financial education company called Gather and Trade. One of their classes focuses on the foundations of cryptocurrencies.
Charles Sterling: Thank you for having me on “The Daily Moth” about FTX.
Callie: Can you explain more about the person who started FTX? What, how, when, and where?
Charles: FTX is an exchange company founded by two persons: Sam Bankman-Fried and Gary Wong in San Francisco a while back ago. It is to trade coins, dollars, and currencies. They started in California and then moved to Hong Kong before moving again to the Bahamas. The company is in the Bahamas. People use FTX to have the opportunity to trade money from their home countries. For example, I use the U.S. dollar and I am able to exchange it for a different coin quickly. It’s easier than looking for an agent that I may not trust. FTX has all the coins ready and all the currencies ready. I can make trades quickly. That is what FTX is for.
Dina: Sam Bankman-Fried. People in the media call him SBF for short. SBF is the founder of FTX. Also what he did with Alameda, which is his other company. So I’m going back a bit here, as FTX is not his only company. He started several companies, including the general FTX exchange where people can buy and sell cryptocurrencies. It also includes options and other futures, which are different ways of trading. He also has FTX US, which is focused on American residents. He also has the Alameda company, which is a research company. But get this, Alameda owns 90% of the coin that runs FTX. That coin is called FTT.
Callie: How do we make a profit from earning and selling money from FTX crypto and why do people invest in FTX?
Charles: FTX allows people the opportunity to trade. If I have U.S. money, euros, or yen, I can trade them for different coins such as Ethereum, Bitcoin, or FTT. There are various kinds of cryptocurrencies. FTX provides a place for trading.
Dina: FTX was very popular because it was very easy to use. You could use it on a mobile app or on a desktop. All you need is to get an FTT coin to access it and go from there to use your money to trade. Using FTT would reduce your transition fees. The cryptocurrency world is not all about the coins, it is broader than that. There are fitness apps, such as the STEPN app. We use it and you can buy shoes on it. A digital NFT thing. You can buy, work out, and share your stats. There are games using crypto as well. You can earn coins. You can mine - this is how we sign it. It means you help to keep the money flowing. You earn fees from mining. There’s a myriad of ways. One nice thing about cryptocurrencies is that it is innovative in many different ways that the dollar is not. And the cryptocurrency world, although it can be very volatile, you can still earn from your investments in specific cryptocurrencies. So it will go up and down but make progress.
Charles: Why do people invest in crypto? Well, people look for opportunities to make money. If I buy something that’s worth $5, I’ll hope that it’ll increase in value so I can sell it to the next person for $7 or $8 so I can make a profit. Cryptocurrencies started with Bitcoin to help people to trade money faster without going through a bank or Western Union. It allows money to move from one to another very fast. That is the original concept of Bitcoin. Later on more cryptocurrencies were added, which made things more complicated.
Callie: What caused the collapse of FTX?
Charles: It started on November 7th. There was a tweet on Twitter and blog post from a man named Changpeng Zhao, who is the CEO of Binance, one of the competitors to FTX. He had a stake in FTX. He announced that he would sell his stake in that company. That started a “bank run.” People saw that he didn’t have confidence in FTX and did the same by making withdrawals of their investments into FTX. FTX was unable to meet the demand for withdrawals and suspended withdrawals, which caused a chain effect of the collapse on Nov 7th.
Dina: There were several factors that created a snowball effect on that company. There is another exchange company called Binance. The founder of Binance — his name is CZ for short as his name is long to spell out. His last name is Zhao. He owns a lot of FTT (coin). He owns a lot and he announced that he plans to sell a sizable amount of FTT. The amount is what we call in cryptocurrency language a “clip.” It means you’re selling a large amount. So he sold a clip of FTT. But he hadn’t sold it, he was only starting to talk about it. It caused a panic and a mass sell-off. So what happened to FTT? Two things. This is common to many people who sell crypto stocks. The same two things. One, the price goes down. Second, when people sell, they want their money “now.” So when people are in a panic and sell, with people making mass withdrawals from FTX, it made FTX impose a freeze. Because of course, their resources are dwindling and their value has plummeted. It is a shock.
———
[Sponsored video from Convo: www.convorelay.com]
———
Callie: I read several news articles that said SBF, the CEO of FTX, was hiding something. This caused the collapse of FTX. What was he hiding?
Charles: He did not explain fully to the public how he operated FTX. It appears that when clients deposited money into FTX, Sam (SBF) used these funds for other things such as investing in other companies, or in a related company called Alameda. It is another company but both are related. You shouldn’t touch money from clients. You can use your own money to invest in the outside world, but he was mixing it. Sam did not mention this when he was running his business. We found out he was mixing and this is very bad in the financial world.
Dina: What Sam (SBF) did was something that he knew he shouldn’t have done. He used his customers’ money, about 10 billion worth of it. Remember that he froze all the money but he still took the money and used a software backdoor to move it to Alameda without a red flag raised by people who would have otherwise objected to the money being moved. The software backdoor, the movement of the money, you’re not supposed to do that. Just not supposed to do that.
Callie: For those who invested their entire life savings, their retirement funds, into FTX and lost out on the money, do they have a chance to get their money back? What is FTX saying to them?
Dina: Slim to no chance of getting their money back. Because if you think about it, right now there are multiple lawsuits. Typically what happens is that the top creditors, meaning those to who you owe money, will get the money first. The banks and those who are the priority lenders will get the money. The individual investors are at the bottom of the totem pole. When it is their turn, there will be very little money left. And to be honest, FTX filed for bankruptcy. They don’t have money.
Charles: For those who invested in FTX or had money in FTX, your chances of getting the money back are very small. It may take a long time. Years. I don’t know, it depends. For example, with the infamous Bernie Madoff, who stole money through lies and deceit, after he was arrested, it took over 7 or 8 years for officials responsible for recovering the money to collect it so it can be given back to the biggest companies and governments. The remaining money went to individual investors. Very small. It took 7 years at a minimum. So for FTX investors, it will take a very long wait to get something or nothing. The risk is high.
Callie: After the FTX cryptocurrency crash, do you feel that there is still a future in the crypto world?
Dina: I have not lost faith in cryptocurrencies. I believe in it just like I believe in stocks. I believe that people deserve the chance, the opportunity to earn money in various creative ways. They don’t have to only rely on a 9-to-5 job. Or in exchange for a 9-to-5 job. I believe that we, especially the Deaf community, with our high percentage of unemployment and underemployment, deserve to have the opportunity to earn various types of income streams. It may be in stocks, crypto, real estate, owning your business, or others. So I have not lost faith in crypto, no.
Charles: The crypto world has for a long time said they do not need government regulation or bank oversight. They can do it online without oversight. But with this incident, now some important people in crypto are saying they need the involvement of the U.S. government or bank regulations so clients’ money can be protected. There is now a conversation. We’ll see where it leads to. The other possibility is that crypto will become obsolete. People may realize it is built on fraud and misleading things and leave it altogether. I don’t know. It’s up to the crypto companies and individuals who have been heavily involved to make decisions on how to run their businesses and make clients feel secure while also dealing with governments all over the world. It is a time of reckoning. We’ll see what happens and it will take a long time for confidence to build again. Or is it gone? It’s up in the air.
Callie: Do you have anything you’d like to add?
Dina: My hope is that this FTX situation makes big players and big movers in the crypto world and companies set up their own commissions for oversight. Also to establish their own insurance because it would help to resolve this kind of situation. It would provide a way for any suspicious activity in a company to be investigated. But that’s not going to happen right now. I hope that’s going to be a new thing in the future.
Charles: Crypto used to be clean, but now we have this controversy. For those who invested, will they get their money back? I don’t know. There is very little customer protection. There is very little trust. There is no way to get assurance that your money is okay. So be careful. Many think that crypto is all good. Yes, it is cool, but it comes with very high risk with high reward but also a high chance of losing your money. So you have to be careful with how you invest money. That is why it is very important to put your money in regulated areas with protection and rules such as FDIC for bank collapses or SIPC if an investing company collapses. There are structures in place to give opportunities for people to get justice and get their money back from the courts. In crypto, there’s nothing. So be careful with thinking “crypto is cool, it’s online, yeah” because there’s a big risk of a catastrophe.
Callie: Thank you, Charles and Dina Rae, for sharing important information on the issue of FTX and cryptocurrencies!