FTX and the end of free money
FTX — an offshore crypto exchange valued at $32B, endorsed by senators, athletes, and most of Silicon Valley — collapsed over four days after leaked financials revealed it had been commingling customer funds with its proprietary trading arm. $8B in customer deposits were missing. Its founder was convicted of seven counts of fraud a year later.
FTX was the third multi-billion-dollar crypto collapse of 2022, after Terra/Luna ($60B) and Celsius ($12B). The underlying cause in every case was the same one from every era on this timeline: a new thing promised uncorrelated returns, leverage made the promise bigger, and the thing was, in the end, correlated.
09 · COVID & Crypto Winter
COVID produced the fastest bear market in history — the S&P 500 fell 34% in 33 days — and the fastest recovery, powered by a $5T Fed and Treasury response. Two years later, the same liquidity bubble that drove the recovery unwound in crypto. Luna/UST lost $60B in three days. FTX — once valued at $32B — turned out to be a fraud. The Nasdaq fell 33%.
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