The world’s second largest crypto-currency exchange FTX went bankrupt last week and the repercussions are felt not just by investors but those who are impacted by easy money schemes, or what’s amounting to Ponzi schemes that are so dubious nobody would have touched these with a bargepole ten years back.
In Sri Lanka crypto-currency dealing was officially banned, but there wasn’t any significant diminishing of interest and curiosity with regard to crypto currencies due to the regulations. But we have had our fair share of Bernie Madoff like schemes and for those who dabbled in crypto-currencies, the fact that people were by and large wary, was a nuisance.
But the FTX collapse in the US — though the operation was centred in the Bahamas — was a blow to all crypto-currencies. But when it came to FTX the fact was that money so-called was created out of thin air.
That’s what crypto-currencies are, a unique new class of assets, somebody may say, but then investors paid good money to invest in these currencies that were created from thin air. So FTX represents a certain type of investment of the modern age when people buy crypto-currencies at high value hoping to make a killing in the future when other currencies fall.
In retrospect was it a good idea for the Central Bank to issue a message essentially outlawing trading in crypto-currencies in this country? Perhaps investors should have been allowed to burn their fingers as they did in the US because people there, despite everything, believe that there are viable crypto-currencies such as Bitcoin and others that are created by whiz-kids who want to make a killing and run.
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But yet Sam Bankman Fried (SBF) who established the FTX exchange was a massive donor to the Democratic Party led by current US President Joe Biden. Nobody questioned SBF’s practices or the fact that he essentially operated from an offshore office in the Bahamas, when those funds for the Democratic Party Election effort were accepted. In other words the young man was considered a legitimate businessman and tech-entrepreneur who had made it good in a very short time.
In retrospect, they say that he bought himself such a lot of political capital that he would not be easily prosecuted but of course investigations are already under way, except that it may not be easy to prosecute him to the full extent of the law in the US because of the fact that he operated from the Bahamas.
He had a great deal of disdain for regulators and regulations and this was reflected in the fact that he tweeted disparagingly of the rules that he had to play by. Eventually it is alleged that he siphoned off money to allied companies without so much as a by your leave from those who had invested. This type of behaviour eventually led to investors pulling out money, and his crypto-currency exchange crashed so rapidly that it is said it took barely a single day for everything to unravel and his multi-billion dollar fortune to drop down to zero despite his assurances a few days before that everything would be all right and fine.
It’s just as well that this country has not been infested by these get rich quick schemes by tech-entrepreneurs even though it is often being lamented here that we are not keeping up with the modern trends. But even those such as Chamath Palihapitiya the tech-wizard with a Sri Lankan background now operating from California, have latterly had their credentials questioned.
Palihapitya was hailed as the king of SPACS, a special type of investment in which he essentially got people to invest in companies that already existed and were trading in the markets. But very soon in some quarters he was being accused of being a pump and dump ‘snake oil salesman’ because they said he got people to invest, but pulled out his own funds early keeping a healthy profit margin.
But he remains a highly-respected tech-entrepreneur and investment advisor and it’s just that the types of purchases that investors deal-within the tech-environment in the USA and many parts of the West are not of the variety that are cut and dried where investors know what exactly they are getting into.
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Palihapitiya has moreover acquired the reputation of being pro-Climate Change technology, and for making pitches based on how climate-friendly companies are. Some have said that he has made use of the climate cause to ensure that he gets people to invest in pump and dump schemes but by and large he continues to be a resonant voice in the tech world.
In this context it could be said that we in this part of the world were wise in outlawing crypto-currencies, but others would say that we are not innovative in the slightest which is why we are languishing where we are now. Palihapitiya himself has been saying that he promoted the google-loon scheme around five years ago in Sri Lanka only to be told that he was in it to steal bandwidth.
Some here would say that the google-loon project was itself a trumped up venture that was not viable and was symptomatic of what was wrong with tech-entrepreneurial ventures coming our way from Silicon Valley and similar locations in the US — which is that there is more hype and hoopla than delivery in any of these projects and ventures.
The other side of the coin, no pun intended, with crypto-currency exchanges such as those of FTX is the fact that those who invest do so mostly because they feel they cannot rely on investments made with regular currencies. They feel that something has got to give when there are currencies that are performing so erratically, and have this notion that one day when all currencies crash, their investments in crypto-currencies would be deemed wise.
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We in Sri Lanka would have been more wary of our currency than most for obvious reasons, but even that didn’t push our investors to go for crypto-currencies because there were no sellers in the country as such even though of course anyone who wanted to buy could do so and there were some who did.
But our folk simply wanted to go abroad and get away from it all and did not think that investing in crypto-currencies and other new and untested investments that would be an answer to the falling rupee. They may have made a wise decision considering what is happening with currencies such as FTT — the crypto spawned by the owners of FTX — and what’s predicted when it comes to other crypto-currencies in the near future.
Others say that though crypto-currencies have got a bad rap because of the FTX/FTT debacle it would still be a good idea to invest in more solid crypto-currencies such as Bitcoin even though the latter has taken a hit too with values plummeting after those scintillating peaks that happened a couple of years back.
In all, though it’s best for the young people of this country in particular to be wary of the shiny new thing that’s touted as the next best get rich scheme, particularly when tech-entrepreneurs recommend such investments.
They have to be wary because in particular most of them don’t have the money to waste on anything. This doesn’t mean that those who lost money on FTX over in the US were somehow shielded. Some have lost fortunes and have their entire lives blighted.
This comes one could say with the territory of modern day hi-tech and its takeover of almost every aspect of our lives. People have blind faith when someone says this is the next best thing that’s come our way from Silicon Valley or thereabouts and the tech-entrepreneurship crucible in North America. But it’s an old story. Some people made money selling tulip bulbs as the investment holy grail in 17th Century Holland. Ponzi and madcap schemes have always endured despite how careful people profess to be with their investments.
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