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Sam Bankman-Fried, the chief executive officer of FTX, has been compared to John Pierpont Morgan (the man, not the bank) in 1907 for his rapid response to the current cryptocurrency market crisis. Now, his rivals have noticed and wish to participate in the bailout competition.
Last month, FTX provided a $250 million credit line to the struggling cryptocurrency lender BlockFi. The next day, Alameda Research, another SBF business, extended Voyager Digital a $500 million credit line. Two weeks later, FTX reached an agreement to buy BlockFi in its entirety.
Reportedly, SBF refused to assist Celsius similarly. In addition, he told Reuters last week that FTX still has "a few billion" to assist other failing businesses.
This is hardly an act of generosity, and viewing it as good for the cryptocurrency business isn't easy.
In the instance of Voyager, it was discovered that Alameda owed Voyager $377 million. It is uncommon for a borrower to rescue its lender. The CEO of Binance, CZ, blasted the Voyager rescue in an interview for the upcoming gm podcast “I would never engage in such a transaction. I would never say, “I will invest in your firm in exchange for a loan,” I would simply not invest in the business and keep my money.”
Acceptable enough. But CZ wants a piece of the bailout pie. He explained, “In the midst of the crypto liquidity crisis, we are examining a large number of agreements, and some of them are truly solid ones. Therefore, I believe you will observe that we will invest in, bail out of, and save several projects.”
Never one to pass up an opportunity for publicity, Tron CEO Justin Sun told The Block that he is willing to spend $5 billion to assist struggling crypto firms.
Cool. But I do not view these bailouts as a healthy way out of the current crypto market downturn. (Side note: Is it fair and truthful to refer to these as “bailouts?” (I believe it is; others disagree.)
Celsius, BlockFi, Voyager, and other cryptocurrency lenders who promised significant returns on customer deposits were always too good to be true. Their deluded business plans assumed an “up only” market scenario. Do they merit being saved?
As CZ pointed out, it is preferable for consumers if firms that store their funds are bought instead of shutting down. “This ensures that people do not lose money, or at least lose less,” he told us. He was unwilling to humiliate the high-yield lenders as well publicly. His opinion: when the cryptocurrency market is thriving like it was in 2020 and 2021, “If your project only yields 2 percent and this other project yields 10 percent, guess what? You’re going to lose consumers. There is a herd mentality: if someone else is doing something, I must also do it to remain competitive.”
On June 23, however, CZ also released a blog post in which he stated: “Don’t perpetuate bad companies. Let them fail.”
I appreciate your reasoning. I am inclined to believe that the present Crypto Winter will weed out the weak, fly-by-night operators, leaving only the solid firms and initiatives standing; the wheat will separate from the chaff.
However, CZ will entirely contradict himself if he begins his bailouts at this time.
