CoinDesk played a role in the meltdown, but for good reason |
Exploring transformation of value in the digital age By Michael J. Casey, Chief Content Officer Was this newsletter forwarded to you? Sign up here. |
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Perhaps some of you feel saturated with FTX news. Maybe others can't get enough. Well, this week's column has something for both of you. It takes a meta look, not at the mindblowing story of the collapse of Sam Bankman-Fried's crypto empire per se, but at lessons drawn from and for press coverage of it. Mercifully, this week's podcast is an FTX-free zone, but that's only because it was recorded last week before all hell broke loose. My co-host Sheila Warren and I went for another Bermuda-themed episode, interviewing Chancellor Barnett, the chairman of Bermuda-licensed digital asset bank Jewell, and Denis Pitcher, the government's chief fintech adviser. We drilled down into the alternative regulatory model Bermuda is pursuing to attract crypto innovators to its shores and into Pitcher's vision for the island territory to establish a "currency standard" for the world. |
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FTX Lesson: Crypto Needs the Press, the Press Needs Crypto |
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Journalists don't like to be the story. We prefer to tell it. But with CoinDesk playing a central role in this week's FTX meltdown – following Ian Allison's bombshell on Alameda Research's suspect balance sheet last week – I got to thinking that we media folk may have to be the story this time around. So, let's examine journalism's place in the crypto industry. |
- On the one hand, there's an unreasonable hostility toward journalists in some quarters of the crypto community. It's exacerbated by a blinkered, self-interested perspective fostered by price-dependent online communities and by a tech utopianism popular in Silicon Valley. This anti-press mindset breeds conspiracy theories and, in steering everyone into the confines of the subcommunities gathered around their pet investment projects, fuels a toxic fragmentation in which each clings to their own narrow version of the truth. It's "my token, right or wrong."
- On the other, the multiyear story of FTX's rise and fall, now culminating in stunning evidence of gross misuse of users' funds, reminds us that journalists can fall victim to the blindness of hero worship. Tough questions should have been asked earlier of FTX founder Sam Bankman-Fried. Alameda Research's phantom balance sheet, propped up with a self-issued currency from sister company FTX, was there in plain sight and we in the press failed to see it until now. Too many accepted the fairytale story of the altruistic "SBF" wunderkind.
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Both sides need introspection, in other words: critics of the press and the press itself. Transparency is in your interests, truly Let me start with the lesson for press critics. These include the token investors who barge their way into CoinDesk reporters' Twitter mentions to accuse them of bias or corruption or stupidity just because they didn't cover some protocol development of NFT drop that to their biased perspective, is the "biggest untold story in crypto."
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My message to them: try, maybe, to step outside the narrow confines of your financial interests and look at the bigger picture. It is not the crypto press's role to protect or promote the participants in an NFT project, the short-term financial interests of FTT investors or bitcoin HODLers. It is to bring transparency to the companies and other institutions that hold influence over how this industry and its markets function, regardless of price impact.
"Don't trust, verify"
Now for our own introspection. The thinking behind this Reagan-era coinage is something all journalists should embrace as a matter of course. It's the "show me the money" idea. You don't necessarily assume your source is untrustworthy, but, without some other independent means of verification, you simply can't run with the information they provide.
The good news: although it's difficult to obtain independent verification – since all means of communication around the relevant topic are controlled by the party journalists are covering – blockchain proofs, along with other cryptographic tools to protect identities, could help. Already, Binance CEO Changpeng Zhao is declaring that his exchange is embracing a "proof of reserves" model based on the cryptographic instrument of Merkle Trees and calling on others to follow suit. This would presumably offer anyone, including an investigating journalist, a tamper-proof source of information on a company's assets.
Off the Charts: Evaporation
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Brutal. That's the only way to describe the destruction of value in FTX's internal token, FTT, which went from a market cap of $3.4 billion to less than $400 million in just one week. The one-month price chart for FTT says it all. |
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The Conversation: Meme Moment
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The FTX meltdown might have been bad for investors, but it was a boon for Twitter's meme creators. So productive was the SBF memetic output that meme2earn.com created a competition for the best meme on the topic. |
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(Jesse Hamilton/CoinDesk) |
Once the FTX-Alameda story was out, the CoinDesk newsroom got into top gear as follow-up developments just kept coming. The result was a trove of stories far too long to capture here. All I'm including is a small sample of the phenomenal output from this past week: |
- After Ian Allison's catalyst Nov. 2 story on the Alameda balance sheet set in motion a market plunge for FTX, and a battle with Binance that led to the latter agreeing to buy the former on Tuesday, the very next day Ian had another scoop: Binance had looked at FTX's books and didn't want in. It was pulling out of the deal.
- The idea that there was no savior just sent FTT into freefall and prompted a rush of money out of FTX. By the end of Wednesday, so much wealth had been destroyed that Sam Bankman-Fried's net worth had dropped from over $15 billion to less than a billion, based on the Bloomberg billionaire's list. Cheyenne Ligon ran with the story.
- What exactly was going on at FTX to lead to all these odd decisions? Tracy Wang dug into the story and discovered that the whole operation was run by ex-roommates and at least one lover of Sam Bankman-Fried in the Bahamas.
- Things got serious when lawyers and investigators started perusing the odd financial relationship between FTX and Alameda. Early on, Sandali Handagama reported that lawyers were beginning to conclude that FTX had violated its own terms of service and misused user funds.
- What of Sam Bankman-Friedman's high-profile philanthropy? Sam Reynolds reported that the team running FTX's "Effective Altruism" Future Fund was resigning en masse, with "fundamental questions" about the legitimacy and integrity of business operations.
- It can't be understated how significant this event will be for the shape of future regulation in the crypto space. Here, Nikhilesh De sought out responses from lawmakers, who are alarmed at the FTX collapse and are calling for legislation to tighten regulation.
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