Back in 2001, precious few Americans could have explained what Houston-based Enron did as a company and how it got so spectacularly wealthy. But when it filed for a record-breaking bankruptcy, Americans got schooled fast about not putting their trust and money behind swaggering, fast-talking con artists. But fools and their money regrouped over the years, and along came FTX, a $32 billion cryptocurrency exchange that repeated many of Enron’s mistakes and yielded the same abysmal results. We suspect that a lot of investors who lost their shirts in the FTX failure would have trouble explaining exactly what FTX did, and that’s largely because the entire cryptocurrency industry is built on fantasy.
Even the person in charge of the company, Sam Bankman-Fried, didn’t understand it completely. “I didn’t know exactly what was going on,” he told The New York Times last week in a DealBook video interview. A year ago, Bankman-Fried was worth an estimated $26.5 billion. Today, the 30-year-old might have around $100,000 in assets. “I’ve had a bad month,” he told the Times.
The losses he and his investors suffered are far more complex to explain than what happened at Enron. That company actually dealt in a tangible asset — energy — but was guilty of creating fake companies and shuffling money-losing accounts among them to hide its financial losses. In the case of FTX, it was an exchange where people bought and sold imaginary cryptocurrency, whose value was based on…
