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There is currently a big scandal in the cryptocurrency industry. And it brings to mind the lyrics of the 1972 Jimmy Cliff hit he sang. This term perfectly describes the current state of cryptocurrency.
Sam Bankman Fried, aka SBF, was the founder and CEO of FTX and Alameda research and a prominent player in the cryptocurrency world. Sam made plans to become a millionaire. He avoided business suits over T-shirts and shorts. He donated to political candidates and social and environmental causes. He recruited celebrities such as Tom Brady, Gisele Bündchen, Larry David, Kevin O’Leary (aka Mr. Wonderful), and Anthony Scaramucci (aka Mooch) to promote his FTX. The company’s brand was in sports and entertainment stadiums. In early 2022, SBF spent millions on one of his most memorable Super Bowl commercials featuring Larry David. Ironically, David’s cartoon “I don’t think so and I’m never wrong about this” was completely right about his FTX.
Today, SBF is at his parents’ home after a federal judge set a record $250 million bail. The SBF faces a series of indictments from the Justice Department that could result in decades in prison. SBF made him one of the richest people in the world before his downfall. The harder they come, the harder it is for them to fall.
Financial scandals are nothing new, but they often push markets to levels that offer attractive value. Only time will tell if the latest cryptocurrency debacle will be replaced by another in a string of explosive rallies since 2010.
Bernie Madoff marked its lowest stock price in 2008.
- Warren Buffett once said, “Only when the tide goes out will you know who’s been swimming naked.”
- The 2008 global financial crisis exposed Bernie Madoff’s infamous Ponzi scheme in late 2008.
- In October 2008, the stock market bottomed out.
- Bernie Madoff died in prison, serving a 150-year sentence.
- The Madoff scandal spurred bearish sentiment across the stock market.
Theranos has sparked bearish sentiment and caution in the biotech sector.
- In 2015, the biotech company Theranos began to unravel when a whistleblower raised concerns about the company’s flagship testing device, the Edison.
- iShares Nasdaq Biotechnology ETF (
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IBB – $131.29 0.05 (0.038%) ) has fallen from a record high of $133.60 in July 2015 to a low of $80.01 per share in early 2016. - In November 2022, a federal judge sentenced Theranos founder and CEO Elizabeth Holmes to federal prison after a jury found her guilty of deceiving investors.
- In December 2022, Holmes’ partner Ramesh “Sunny” Balwani was sentenced to 155 months on a fraud conviction.
- Theranos has influenced sentiment in the biotech sector.
Mount Gox pushed cryptocurrencies down in 2014.
- Mount Gox is a Tokyo-based cryptocurrency exchange that once accounted for over 70% of Bitcoin trading.
- In February 2014, Mount Gox lost thousands of bitcoins in a hack, and the exchange filed for bankruptcy.
- From a November 2013 high of $1,135.45, it fell to a low of under $220 per token in August 2015 following the Mount Gox hack and bankruptcy.
- Mt.Gox undermines confidence and sparks bearish crypto sentiment.
The dust from FTX hasn’t settled.
- The demise of FTX occurred in November 2022 after Bitcoin fell from above $68,900 in November 2021 to just over $15,500 in November 2022.
- The market capitalization of the crypto asset class has fallen from over $3 trillion to less than $1 trillion.
- The U.S. Department of Justice has just launched an investigation, filing a series of criminal charges against FTX founder and CEO Sam Bankman-Fried. Two of his inner circle members have pleaded guilty and are cooperating with federal prosecutors.
- The systemic impact of FTX’s bankruptcy remains fluid.
But… scandals can also create value.
- The stock market has recovered and rebounded after the Bernie Madoff scandal.
- The IBB Biotech ETF has recovered, hitting new all-time highs after Theranos scam.
- Bitcoin and the cryptocurrency asset class exploded into a series of new record peaks after Mount Gox.
- Only time will tell if FTX leads to similar price action in the burgeoning cryptocurrency asset class.
- The extent of FTX’s influence on regulation, the political environment, and market sentiment will determine the future of Bitcoin and cryptocurrencies.
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