FTX: "Crypto’s Lehman Moment"

Is This Crypto’s Lehman Moment?

The crypto industry is known for dramatic twists, roller-coaster prices and fortunes that appear and disappear overnight.

But even by crypto standards, what happened this week was bonkers.

To non-crypto watchers, the news — the collapse of FTX, one of the largest cryptocurrency exchanges in the world — might sound boring or esoteric, the kind of story you’d happily scroll past on your way to reading about Elon Musk’s latest Twitter tempest.

But within the crypto world, it is already being referred to as the industry’s “Lehman moment” — a reference to the 2008 collapse of Lehman Brothers, which set off a global financial panic and made it clear to laypeople just how much trouble Wall Street was in.

SEC, DOJ Investigating Crypto Platform FTX

The Securities and Exchange Commission and Justice Department are investigating cryptocurrency platform FTX following its sudden implosion this week, a person familiar with the matter said.

Staff at the two law-enforcement agencies were in close contact Wednesday, the person added. The Justice Department prosecutes criminal violations such as fraud, while the SEC enforces civil investor-protection laws.

FTX’s legal and compliance teams quit

One challenge: Most of FTX’s legal and compliance staff quit Tuesday evening, people familiar with the matter told Semafor, leaving few executives who could answer questions that now loom large over the firm.

The big crypto winner of the midterms? The SEC and CFTC

With Democrats performing better than expected and Bankman-Fried’s fall from grace, experts say any legislation likely will take even longer. Amid the regulatory vacuum, that means the winners will be the Securities and Exchange Commission and the Commodity Futures Trading Commission, which can continue making ad-hoc enforcement decisions and jockeying for power.

“The longer it takes Congress to do anything, the more the SEC and the CFTC are going to feel the need to step in,” said Charley Cooper, managing director at blockchain firm R3 and a former chief of staff at the CFTC.

FTX Hurtles Toward Bankruptcy With $8 Billion Hole, US Probe

The crisis engulfing Sam Bankman-Fried’s FTX.com is rapidly worsening, with the onetime crypto wunderkind warning of bankruptcy if his firm can’t secure funds to cover a shortfall of as much as $8 billion.

Bankman-Fried informed investors of the gap on Wednesday, shortly before rival exchange Binance abruptly scrapped a takeover offer. He said FTX.com needed $4 billion to remain solvent and is attempting to raise rescue financing in the form of debt, equity, or a combination of the two, according to a person with direct knowledge of the matter.

“I f—ed up,” Bankman-Fried told investors on the call, according to people with knowledge of the conversation. He said he would be “incredibly, unbelievably grateful” if investors could help.

LBRY Token Ruling Gives SEC Ammunition in Crypto Enforcement

The SEC has ramped up enforcement action in the crypto space. In May, the agency nearly doubled the size of its Crypto Assets and Cyber Unit to 50 positions, the SEC said.

Barbadoro’s ruling will bolster the agency’s confidence, and give it impetus to push the boundaries of its authority, attorneys said.

The ruling can serve as a precedent that the SEC can use. It also has an “in terrorem effect—something they can point to when reaching out to organizers of other token-based enterprises to say, ‘You can’t do this’ or ‘You need to do it this way,’” University of Georgia law professor Usha Rodrigues said.

The Fall of FTX’s Sam Bankman-Fried Puts Crypto Industry on Edge

The rival, Changpeng Zhao, the chief executive of a bigger crypto exchange called Binance, agreed to bail out FTX. But FTX’s future grew murkier on Wednesday when Binance abruptly said the deal was off. Without much explanation, the company said in a statement that its executives changed their minds because of regulatory concerns and issues with “corporate due diligence.”

The deal’s collapse has sent shudders through the entire crypto industry. The uncertainty around the future of FTX has become an existential threat to young crypto businesses as they struggle to convince Wall Street, regulators and mainstream consumers that they are trustworthy. As news spread of FTX’s collapse, crypto markets took a battering, with Bitcoin and Ether both dropping more than 20 percent in value since Tuesday.

SEC has said nothing to prove Polkadot is not a securitySomehow, as a result of these communications, and without engaging with the enforcement division of the SEC at all, the Polkadot community claims it was able to gain the SEC’s most sought-after designation for a crypto asset: not a security.

Further, that the SEC issued a no-action letter regarding DOT and that commissioners responded to press inquiries regarding DOT’s designation.

However, the SEC hasn’t provided any evidence for this highly unusual, unilateral announcement from Polkadot. There’s no comment from the SEC regarding this designation, nor has the Web3 Foundation cited a no-action letter or similar injunction.