Davos crypto crowd distances itself from FTX and Sam Bankman-Fried

Ripple CEO: 2022 will become one of the worst years for cryptocurrencies

DAVOS, Switzerland — The crypto community in Davos has been trying to distance itself from the dramatic collapse of FTX and its co-founder Sam Bankman-Fried, who is now facing federal criminal charges in the US

Bankman-Fried, the former chief executive officer of FTX, was indicted by US federal prosecutors on eight counts, including securities and wire fraud. He was extradited from the Bahamas to the United States and has so far pleaded not guilty. Two of his former business partners, FTX co-founder Gary Wang and former Alameda Research CEO Caroline Ellison, pleaded guilty to federal fraud charges and agreed to cooperate with US prosecutors.

“FTX in my view is now being portrayed as a cryptographic issue. I think if you really peel enough onion layers, it’s not really a cryptographic issue happening here, it’s a fraud. And I think we shouldn’t pretend it’s something else, Brad Garlinghouse, CEO, Ripple, told CNBC.

Garlinghouse also explained Ripple’s exposure to the collapsed cryptocurrency exchange. In an interview Wednesday, you said Ripple had leased about $10 million XRP to FTX, which “they’ve used on various FTX-related things”. XRP is Ripple’s native cryptocurrency.

NEW YORK, USA – JANUARY 03: Sam Bankman-Fried leaves the courthouse in New York, on January 03, 2023.

Fatih Aktas | Anadolu Agency | Getty Images

The company hopes to recover those funds from bankruptcy proceedings in the United States, Garlinghouse said. However, he added that the firm’s FTX exposure wasn’t “too consequential” for its business, accounting for just 1% of “liquid assets.”

Other cryptocurrency executives also held a similar view to Garlinghouse.

“It’s important to distinguish that [FTX collapse]it’s a failure of institutions, it’s a failure of individuals… this is very different from technology,” Celo co-founder Rene Reinsberg said on Thursday during a panel hosted by CNBC.

Crypto executives have acknowledged the reputational impact on the industry from the FTX fallout, but said it will focus more attention on well-run companies.

“I think, especially when you had … so many significant people supporting … FTX, and there’s a lot of egg on people’s faces,” Circle CEO Jeremy Allaire said in an interview on Tuesday with CNBC .

“I think at the same time, right, that’s going to put a lot more scrutiny on… who are companies that are well run, well capitalized… well regulated, have strong auditing, have strong controls, all the things that matter if you run a global financial institution. People are really going to start paying attention to that rather than believing, you know, some kind of fairy tale,” Allaire said.

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Ripple’s Garlinghouse compared Bankman-Fried’s action to Bernie Madoff who ran the largest Ponzi scheme in history and defrauded thousands of investors.

“We talk about this as a cryptographic issue. But really it’s just a fraud, and I think in some ways it’s not that dissimilar to Bernie Madoff,” said Garlinghouse. “When Bernie Madoff occurred, we didn’t completely restructure the way we thought about hedge fund supervision and regulation.”

“We realized that clearly the SEC had overlooked that case as well [Madoff]and that if people reported to the SEC, they should have investigated Bernie Madoff,” he said.

Not just cryptocurrencies that have had a hit

The cryptocurrency industry has seen an estimated $2 billion wiped out of its overall market capitalization since the market reached a combined $3 billion in November 2021.

Garlinghouse said Wednesday that it is unfair to single out cryptocurrencies in risky asset investors’ loss assessments in 2022, as other asset classes have also suffered sizeable losses. For example, major US tech stocks were also hit.

“Between Facebook, [Amazon] And Tesla, $2 trillion evaporated last year… add Tesla, Facebook and Amazon, you definitely get $2 trillion. No one is arguing that we shouldn’t continue to invest in those companies,” she said.

“I think it is clear that low interest rates have generated a lot of foam in the macro markets and as… the direction of the interest rate trip has changed in spring 2022, many asset classes have reset, obviously we have seen some bad players in cryptocurrencies, and that added to the contagion.

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