Crypto News for Realtors – Issue 42

November 20, 2022 | Issue 42 – SPECIAL ISSUE: FTX SAM BANKMAN-FRIED, A VERY BAD DUDE Over the past 42 weeks, I’ve documented the rise of crypto, the short-lived excitement of using NFTs to purchase houses, the sudden collapse of several exchanges during the summer that decimated the crypto market, and crypto's transformation from an asset that was a hedge against inflation to one that followed the S&P. During this volatile time, crypto news found a new face for crypto. Instead of the relatively reclusive founder of Ethereum, Vitalik Buterin, the media started profiling 30-year old Sam Bankman-Fried ("SBF"). Bankman-Fried was the CEO of the $32B crypto exchange FTX and Alameda Research. He was commonly described as a wunderkind. He built a personal brand of a nerdy, brilliant, crypto leader whose mission was to bring crypto to the masses and redefine finance. SBF dressed the part – shorts, t-shirts, wild head of curls. He was on the cover of influential magazines, such as Fortune. He shared a stage with Tony Blair and Bill Clinton. He projected an anti-greed capitalist image by embracing the new Effective Altruism philosophy of earning as much money as possible, living modestly, and donating everything else to help others. When SBF was interviewed, he didn't come across as arrogant or disingenuous. He seemed brilliant, likable, and most-importantly, trustworthy. SBF used his money and fame to gain access to Washington's power brokers. He met with leaders and staff of the SEC and CFTC, US Senators and Representatives. And then.... poof. It was all gone. In a shockingly short period of time, FTX, Alameda Research, and the 100 plus other entities controlled by Bankman-Fried went into bankruptcy. Bankman-Fried was fired. The impact of FTX's failure on the crypto industry will be profound. In this issue of Crypto News for Realtors I will unpack what happened. Before we jump into the FTX debacle, you are likely wondering how will this impact crypto and real estate. Extensive news coverage of this spectacular crypto business failure and its financial impact on investors and FTX employees has ignited a fire under the collective butts of the legislators and regulators. The crypto industry will be reined in. Investors will be protected and the benefits of crypto will be realized – lower transaction costs, exponentially faster transfers of international payments, increased security and transparency on a decentralized and public ledger (blockchain), and opportunities for world's bankless population to acquire property and build wealth. Don't give up on crypto because of the FTX headlines. Crypto isn't going to disappear. In 2023, the crypto industry will grow up. The benefits of crypto, institutional endorsements, and regulatory safeguards will give people the comfort and confidence that crypto is more than a speculative investment. It will become another asset in your homebuyers' portfolios. Keep the faith and never stop educating yourself about crypto. If you want to see past issues of my crypto newsletter, go Crypto News for Realtors. Also, check out my YouTube videos and Podcast Crypto News for Realtors wherever you get your podcasts. Have a productive week and stay crypto curious! Rich Hopen richard.hopen@compass.com | 908.917.7926 PS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS – FTX IMPLODES ▸ The Life & Death of FTX Sam Bankman-Fried's $32B crypto trading firm FTX not only imploded, it caused a $150B loss in the crypto market in three days after FTX's token FTT, dropped 80%. Here are the key events explaining what happened: 1. 2017 - Alameda Research was founded by SBF. 2. 2019 - FTX was founded by SBF. He had a majority stake in both entities and the businesses were intertwined. 3. Binance, the largest crypto exchange, invested in FTX. 4. FTX grew rapidly and Binance sold its equity back to FTX. A portion of the payment was in FTT tokens. 5. Spring and summer 2022 - FTX purchased and provided loans to several large failing crypto firms. 6. Nov 2, 2022 - CoinDesk published an article by Ian Allison that disclosed a leaked Alameda balance sheet. It showed of $14.6B of assets, the biggest asset was $3.66B of FTT and after that was $2.16B of FTT collateral. 7. Nov 6, 2022 - Binance announced it would sell hundreds of millions of FTT. This precipitated $4B in withdrawals. A backlog of FTT sale requests started. 8. Nov 7, 2022 - $6B of FTT was withdrawn. 9. Nov 8, 2022 - FTX could not meet customer demand for withdrawals and there was a "liquidity crisis." Binance signed a Letter of Intent with FTX to acquire the company. 10. Nov 9, 2022 - Binance withdrew its offer after starting its due diligence. The Wall Street Journal reported that FTX used billions of customer funds for its crypto trading firm. The failure of FTX to segregate and protect customer funds is the central reason for FTX's failure. 11. Nov 11, 2022 - SBF resigned and filed for bankruptcy. It was the largest crypto bankruptcy filing.

▸ The Autopsy Begins FTX's new CEO, John J. Ray, III, oversaw Enron's bankruptcy. He reported to the court in a filing, "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.” Among the major problems flagged by Ray... ● No accounting department. ● No human resources department. Ray could not obtain a list of employees. ● No records of real estate purchased by the company. ● A $1B loan from FTX to Sam Bankman-Fried. ● Alameda spent over $8B to acquire startup by trading on credit that no other firms received. ● No records of board meetings. ● No records of customer asset deposits. After reviewing available financial statements, Ray said that he lacks confidence in the records. He cited examples of inadequate procedures, such as payment request submitted on chat platforms with supervisors giving approvals with emojis. Bloomberg opinion columnist Matt Levine questioned how other FTX leaders could claim to be shocked by these practices. Levine wrote, "On the one hand, it does seem like FTX was what you’d get if a half-dozen college buddies ran a global financial exchange with no supervision. On the other hand, there were in fact hundreds of employees, including a chief regulatory officer. They resigned in shock when they learned about FTX’s insolvency and its misuse of customer money. But presumably they knew about the … emojis in the chats? It is one thing for a small group of top executives, who all live with each other, to do intentional fraud and keep it secret from the rest of the company. But the 'complete failure of corporate controls and … complete absence of trustworthy financial information' seems like something someone might have noticed." Expect to see continuous coverage of FTX's failure and hearings on Capitol Hill.

OH, ONE MORE THING – Crypto leaders have been making the rounds on business shows to explain why the FTX failure will not kill bitcoin. Strike CEO Jack Mallers explains why bitcoin is insulated from FTX.

Thanks for reading! See you next week.