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The Real Story
Bonus: Sam Bankman-Fried's multibillion dollar FTX fraud
00:26:39
What the Crypto King's fall from grace means for the future of cryptocurrency
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- [00:00]
Joe Tidey
This BBC podcast is supported by ads outside the uk.
- [00:07]
Erin Delmore
Hey, this is Sarah. Look, I'm standing out front of a.m. p.m. Right now and well, you're sweet and all, but I found something more fulfilling, even kind of cheesy. But I like it. Sure, you met some of my dietary needs, but they've just got it all. So farewell oatmeal. So long you strange soggy breakfast.
- [00:25]
Joe Tidey
Break up with bland breakfast and taste AM PM's bacon, egg and cheese biscuit made with cage free eggs, smoked bacon and melty cheese on a buttery biscuit. AM P M. Too much Good stuff.
- [00:37]
Erin Delmore
This is the story of the One As a custodial supervisor at a high school, he knows that during cold and flu season, germs spread fast. It's why he partners with Grainger to stay fully stocked on the products and supplies he needs, from tissues to disinfectants to floor scrubbers. All so that he can help students, staff and teachers stay healthy and focused. On call 1-800-GRAINGER, click grainger.com or just stop by Granger for the ones who get it done.
- [01:08]
Katya Adler
Hello, I'm Katya Adler, host of the Global Story podcast from the BBC World Service. The Global Story brings you fresh takes and smart perspectives from BBC journalists all around the world. We're dropping a bonus episode of our podcast into the Real Story feed every day this week, and if you'd like to hear more of our previous episodes, we hope you do. Search BBC the Global Story wherever you get your BBC podcasts. Today, Sam Bankman Fried was the golden boy of cryptocurrency, dubbed the king, even the savior of the industry. Until he wasn't.
- [01:46]
Erin Delmore
Sam Bankman Fried perpetrated one of the biggest financial frauds in American history.
- [01:50]
Katya Adler
Prosecutors said Sam Bankman Fried had used.
- [01:53]
Erin Delmore
Money stolen from FTX to protect prop.
- [01:55]
Katya Adler
Up his investment fund and to fund his lavish lifestyle.
- [01:58]
Joe Tidey
Investors now face billions of dollars in losses.
- [02:01]
Katya Adler
He's gone from a luxury penthouse in the Bahamas to a jail cell in Brooklyn and could spend the rest of his life behind bars. He'll be sentenced by a court in New York this week. Cryptocurrencies were predicted to revolutionize and democratize the world of finance. Today we're asking, are they living up to that hype? With me today is Joe Tidey, the BBC's cyber correspondent based in London, and Erin Delmore, our North America business correspondent, on the line to us from New York. Hi both of you.
- [02:36]
Joe Tidey
Hello.
- [02:36]
Erin Delmore
Hi Katja.
- [02:37]
Katya Adler
How big has this story been for you both? I mean, Sam Bankman Fried himself And just like cryptocurrency, how big is it for you, Aaron, in your daily BBC work?
- [02:50]
Erin Delmore
It would be fair to say that this absorbed my central focus in the fall. And that's no accident, right? It's when we saw this trial kick off. It's when I started going to the courthouse. And that's not a simple thing. That's an early morning wake up. You queue up in line with a bunch of other reporters and a real mishmash of people. And it was real drumbeat coverage for us for a long time, up until November. And of course, that's just one beat in the bigger story of what's been going on with crypto. So it's. It has been a huge part of my focus.
- [03:18]
Katya Adler
Joe, I want to ask you, because before Sam Bankman Fried's arrest, he was the golden boy of the cryptocurrency business. You met him, you interviewed him. Paint us a picture of the man that we're talking about today.
- [03:33]
Joe Tidey
Yeah, well, I suppose it's sort of the Bankman Fried before arrest and post arrest, or before collapse and post collapse. Because before the collapse, straggly head, socks and trainers type person was not your average CEO. Yes, you get the occasional tech bro who dresses down and acts relaxed, but there was no one quite like Sam Bankman Fried, who burst onto the crypto scene. And for some reason, that. That kind of was a big part of his charisma and his charm. And people were throwing money at him left, right and center. An MIT graduate, a maths genius, really, I think it's not an exaggeration to say with a very kind of awkward way about him. Didn't give you much eye contact, had a very jittery right leg that kept bounc whenever he would be talking to you during interviews or during phone calls and zoom calls. He famously played computer games and didn't really give. Give the people his entire attention, but managed to still charm lots and lots of people into investing money into him. And he was a hero of the crypto world. The king of crypto, he was nicknamed. And then, of course, it all came crashing down in just a few days.
- [04:36]
Katya Adler
So, cryptocurrencies. I think everyone's heard of bitcoin, probably as the biggest one, but when we get into details, it can be a bit confusing. I mean, eyes cross a little bit by the time I get into altcoins, blockchains, and a lot more than that. Can we simplify?
- [04:52]
Joe Tidey
Sure. So it all started with bitcoin back in 2008. And person or Persons that call themselves Satoshi Nakamoto came up with an idea and launched this peer to peer digital currency called Bitcoin. And that started everything that we see now. So there are thousands of different cryptocurrencies, some of them you may have heard of. Bitcoin is obviously by far and away the most valuable, the most famous, the most impactful. Then you've got Ethereum, which was kind of the second on the scene. And the idea of this technology was that it would be able to send money like an email. So you send money from anyone in the world to anyone in the world, as simple as clicking a few buttons. And of course, in order to send that money, you have to create your own money. So they built this whole digital currency which is made by computers. So there's an algorithm that computers churn through in order to verify every single transaction ever takes place. And if you are part of that volunteer system, you give your computer to that system, then you are rewarded with new Bitcoin and that's how new coins come on the system. But of course it's all based on faith because it's not backed by any financial institutions, any governments or anything like that. It's all done decentralized by people. So you are effectively putting a value, you're placing a value on a currency that has no value in it. You could argue gold's the same, couldn't you? And that's what bitcoin fans do.
- [06:20]
Katya Adler
Aaron, walk us through Sam Bankman Fried's business, because he came up with something called the ftx. So even though the money is, it's all happens on a digital platform, when you buy it, you still need to keep it somewhere.
- [06:34]
Erin Delmore
Exactly. And this is where the term wallets come in, digital wallets. And so basically somebody could go onto a crypto exchange when whether it's FTX, the 1 SAM Bankman Fried founded, or a different one, and they use their dollars to buy cryptocurrencies, different kinds of cryptocurrencies, and then all of it, their dollars and their cryptocurrencies get stored in digital wallets there. And there's a trust that the funds will be there for them to access, to make different trades, to move, to withdraw. And this is the root of what we saw happen with customer funds at ftx. When customers went to withdraw the funds, they weren't there.
- [07:08]
Katya Adler
He may have been the founder of ftx, but at the same time he also was the owner of a hedge fund. Is this the core of the problem?
- [07:19]
Joe Tidey
Yeah, I think we can Pin everything down to one specific news report, actually, from a journalist at CoinDesk who looked into the finances of Alameda Research, which is the hedge fund, and ftx, his main business, and found out that a lot of what was holding up Alameda Research, this hedge fund, was made up cryptocurrency that he had invented himself for FTX called the FTT token. Because, of course, anyone can create a cryptocurrency. All you've got to do is have people who think it's worth something and they'll put money into it. So FTT was at the time very valuable and worth something. But this journalist said, well, hang on a minute. Can you really prop up an entire company and have that as a reserve currency when it's your own currency that you've just made, you've just created and invented it. And that started questions about Alameda Research and by association, ftx, how safe and financially stable they were. And then, of course, there was this run on the FTT token, and giants, we call them crypto whales, sold all their FTT tokens. So suddenly the FTT tokens went down in value. Then a second point that really was the nail in the coffin was that another journalist at the Wall Street Journal accused Sam Bankman Fried of using money from FTX customer money to place crypto bets for the hedge fund Alameda Research. So, as Erin said, those wallets that you think are safe, that was actually being used in his other company on bets that were ultimately failing, and that's what caused the collapse.
- [08:47]
Katya Adler
So, Joe, what did it mean for people who invested in FTX at the time when it just sort of went over the cliff?
- [08:54]
Joe Tidey
Yes. So there was billions and billions of dollars taken out of FTX by people panicking, and they logged on and they emptied their wallets as quickly as they could. And it got to the point where withdrawals were frozen. And that is never what you want to hear. Like when you see, for example, when a bank collapses and you see those queues outside down the street, and then suddenly they say, sorry, we can't let you withdraw any more money in the end, 1.2 million, I think. Erin, is that right? You were in court, is it 1.2 million people were left out of pocket.
- [09:23]
Erin Delmore
It's more than a million. And they described it as an $8 billion hole. This money that had been, you know, the hole in Alameda's account. Customer funds from FTX were used to plug.
- [09:38]
Katya Adler
So we're soon going to hear what happens to Sam Bankman Fried. The sentencing that's this week. I'm really interested to hear from you Joe. I mean you interviewed him at his home in the Bahamas in 2022, just days before he was arrested and extradited to the U.S. did you get the sense that this sort of intellectual, messy haired image was an image? Was he a fraud? Was he incompetent? Was he even malevolent? Did you get a sense?
- [10:10]
Joe Tidey
It was the most bizarre interview ever done because a few journalists were able to get a chat with him. We all had knew he was going to be arrested. It was just a matter of time. So when he said, yes, you can come along and me and producer Emma Ailes went out to the Bahamas, there was no restrictions on time, there were no restrictions on questions. He turned up a little bit late in his trademark shorts and white socks and you know, crazy hair and he sat there and he took all my questions and I spoke to a few victims before I went in so I was sort of channeling their anger a little bit and he just, it was like he accepted the torture. That's what it felt like. My producer Emma said that it's like self flagellation in a sense. Were you incompetent or were you fraudulent?
- [10:51]
Katya Adler
I didn't knowingly commit fraud. I don't think I committed fraud. I didn't want any of this to happen. I was certainly not nearly as competent.
- [11:00]
Erin Delmore
As I thought I was.
- [11:01]
Joe Tidey
I had this strange feeling where I felt that I believed him, but I also felt that he had done all the things he was being accused of. So in a sense I felt that he had perhaps believed his own lies because he was so convincing and he did admit to wrongdoing but he was very, very careful not to say that any of it was illegal.
- [11:27]
Katya Adler
Erin, what do you think the court's going to decide? The maximum punishment he could face is 110 years in prison. Do you think he'll get that?
- [11:35]
Erin Delmore
Absolutely not. The way that this works is that each charge he was convicted of has a suggested maximum and when we total them up it is an overwhelming life plus sentence. But there are a lot of things that the judge takes into account here and in this case it's Judge Lewis Kaplan. He's somebody who has shown himself willing to check Sam Bankman Fried where needed at times, calling him out during the trial, having him stay on task. At one point he revoked Bankman Fried's bail before the trial started for alleged witness tampering. He's a no nonsense guy, but that number I think everybody thinks is, is quite High.
- [12:12]
Katya Adler
Jo, when you interviewed Sam Bankman Fried, you did ask him how much his actions had hurt the cryptocurrency industry. What did he say?
- [12:22]
Joe Tidey
Well, I asked him, have you killed crypto? You've done a lot of damage to people's lives. People have lost money.
- [12:29]
Katya Adler
Yep.
- [12:29]
Joe Tidey
That they're probably not going to get back. But a lot of people have also lost faith in the crypto industry, in the crypto world. Do you think you might have killed crypto?
- [12:38]
Katya Adler
I hope not. I don't think so. I think it's more resilient than that. And I think if I killed crypto, then that means crypto wasn't what we all thought it was.
- [12:48]
Joe Tidey
That was really interesting to me because at the time bitcoin was extremely low. It was one of the doldrums. I think it was something like 17,000 or something like that per coin. And you can see on the graph of the value of bitcoin, which is the graph that everyone in this world lives by, is the ups and downs of bitcoin. You can see when FTX collapsed, there's a drop. But it came off the back of a terrible year. There was the collapse of another big company called Terra Luna. The CEO of that company, he went on the run. This crypto winter wasn't started by Sam Bankman Fried. He very much contributed to it. And interestingly, he was right. It hasn't killed crypto. His arrest and the Sam Bankman Fried story has not ended crypto. In fact, we are now back at all time highs for the price of bitcoin. It has bounced back with a vengeance and it doesn't look like it's going to go away.
- [13:44]
Erin Delmore
Coming to the moment that we're in right now, we're talking about an industry with a $2.8 trillion market cap and bitcoin is about half that. Just to put this into context. And bitcoin's price has gone up. I mean, often when I look at stock prices, I'll go back five days a month, a year. It's a straight line up. Katya. It was under $30,000 a piece just a year ago. Now above 70, we keep seeing records and there are a few reasons for it. Right? One of the reasons why bitcoin prices are going through the roof right now is because there's a halving event taking place in the beginning of April where for the amount of bitcoin that's mined, only half as much bitcoin will be produced. Right. Supply and demand, we know this. That makes it more Enticing to gobble up right now. And because the US Is offering a financial product called a spot Bitcoin etf, there are multiple, and they're being bought into. And it's a huge vehicle here where it makes it much, much easier to invest in cryptocurrency.
- [14:39]
Katya Adler
One very big vulnerability here is the fact that, as Joe was saying earlier, anyone can start a cryptocurrency. I mean, the three of us could get together now, couldn't we, and set up a cryptocurrency. But then we could withdraw the money, sell our shares and run away, and the investors wouldn't have anything left. So what regulation is in place to stop that happening? Is the wild west being regulated now.
- [15:04]
Erin Delmore
Katya, when I think about this, I think about regulation and I think about enforcement, and I think about the difference between the two, as far as, you know, actual laws on the books go. It's something that the US Congress is still wrestling over. But in the meantime, enforcement action, I mean, we've just seen over and over again. And that's not just something that we see, you know, from the securities and Exchange Commission, but there are quite a few governing bodies. The Commodities Futures Trading Commission, the Department of justice, even the Treasury Department has an arm, the Financial Crimes Enforcement Network, and they act as the cops. And what we have seen is what some critics call regulation by enforcement. Kind of saying that this thing of the cops telling us, oh, that's too much, doesn't make it a very hospitable environment to grow a crypto exchange or to grow the crypto industry generally in the usa. So when we talk about this push and pull, you have crypto exchange founders saying, we'll move overseas. And that was a lot of the debate over the last couple of years and months, these threats to just decamp and move the industry out of the United States. Now, you know, a lot of people have walked that back, but instead, if we look closely, we do see them investing more in their overseas operations.
- [16:13]
Katya Adler
So we've had a look together at the Wild west of cryptocurrency, which you're telling me is becoming a little bit less wild. We've looked at the rise and fall of Sam Bankman Fried ahead of hearing his sentencing this week. Next, I want to find out about cryptocurrency's future and your predictions. This is the global story. We bring you one big international story in detail, five days a week. We really love hearing from you. Like Alejandro, who listens to us in Spain. Alejandro told us that he started listening to help improve his English. So I shall try and enunciate my words very well. And you too, please, Aaron and Joe, just for you. Alejandro, let us know where you're listening from in a text or a voice note on WhatsApp or you can always email us at. The globalstorybc.com is crypto living up to its promises? We know that it's hit an all time high. Is this deservedly so? I mean, if we have a look, Joe, at bitcoin, when it was officially launched way back in 2009, its supporters said it was going to revolutionize global finance. Has it?
- [17:26]
Joe Tidey
No. And it doesn't look like it's going to in the way that it was designed. So I think the idea of it replacing money, that's traditional money, dollars, pounds, euros, whatever it is, it seems very unlikely at this stage. What I think we are seeing, which is fascinating, is that bitcoin has become a digital gold. It is a store of value and it doesn't seem to want to go away in that sense. You have these times in bitcoin's history where it's collapsed down to $12,000 a coin.
- [17:58]
Katya Adler
Is the love affair with bitcoin over the digital currency nosedived earlier, falling below $12,000 this morning. This after losing a big chunk of its value over the past five days.
- [18:10]
Joe Tidey
And it's jumped up to 65, 70,000. We're back there now. It's really hard to count out bitcoin as going to zero. And I think what we've seen in the last particular, despite all the turmoil that we've been discussing of fraud and problems with cryptocurrency, financial institutions are seeing it as a bet to be made.
- [18:31]
Katya Adler
It is a massive industry. More than $2 trillion invested in cryptocurrencies worldwide. I believe who is driving the industry these days? I mean, we mentioned whales. There are private and institutional whales, aren't they?
- [18:48]
Joe Tidey
Yeah. Well, I think part of the reason why the price is so high now and why it doesn't seem to be calming down at all is because these whales are becoming bigger and bigger. The banks, the blackrocks, the grayscales, the fidelities. Since the US decided to green light these spot Bitcoin ETFs in January, a.
- [19:05]
Katya Adler
Big win for the cryptocurrency industry. After a landmark federal ruling by regulators, the securities and Exchange Commission, they approved nearly a dozen investment funds that will now let everyday investors buy and sell bitcoin much as they do stocks.
- [19:20]
Joe Tidey
There was a bit of a pause where and everyone was thinking, oh, hang on, this hasn't had any impact. But then suddenly we start seeing these giants of finance literally buying hundreds of thousands of bitcoins from exchanges. And suddenly the demand goes up and the supply goes down, and now the value is skyrocketing. That's the main reason why I think we are seeing a change now to this idea that it is a digital gold. Because the thing to bear in mind, Katya, is that there are only ever going to be 21 million bitcoins the way that Satoshi Nakamoto designed it in the white paper in 2008. The algorithm will not allow more than 21 million bitcoins we've already mined, which means made, produced about 19 and a half million. And many of those are tied up in these whales that own them. So you imagine suddenly you've got that portion, that pool of potential bitcoins, that pool of digital gold going down and down and down. Bear in mind, I love this statistics. For example, about 4 million of those bitcoins are lost forever because people have lost their wallet details. And there's no customer support in bitcoin. It's gone.
- [20:25]
Erin Delmore
You know, in my reporting, I find a lot of people are surprised to learn that they're invested in crypto. If you have a 401k here in the United States, that's a retirement savings fund, or if you're pensioned or part of a diversified portfolio, in many cases can be investment in cryptocurrencies. So you might be invested in crypto tied, you know, with a stake of your own fortunes to these riskier assets. And maybe you don't know it.
- [20:49]
Katya Adler
And also, Erin, do you find in your reporting, whether it's sort of big business or individuals, that cryptocurrencies are what they originally promised to be a lifeline for people who don't have access to traditional banking services, for example.
- [21:05]
Erin Delmore
So there are two factors that are kind of coming to a head here, right? And one of them is distrust or skepticism or a perceived unfairness in the traditional banking industry, which kind of knocks on a few different chords in American society right now, right? One is this widening gap between rich and poor. Another is this idea of, of how do you gain wealth? How do you better yourself? You know, the idea that the middle class is eroding, so how do you keep your footing or how do you even build intergenerational wealth? A lot of people have looked at crypt because it promises big rewards. And it also tugs on heartstrings about fomo. Fear of Missing out, especially when you see these advertisements with the US actor Matt Damon likening investing in crypto to man, voyaging to the moon with four.
- [21:51]
Joe Tidey
Simple words that have been whispered by the intrepid since the time of the Romans. Fortune favors the brave.
- [21:59]
Erin Delmore
It kind of hits on a lot of emotional cords and a lot of what could be a big upside here. And I think that does a lot to draw people in.
- [22:06]
Katya Adler
So cryptocurrencies were also seen as an alternative for developing countries who had unstable national currencies. How much of an uptake has there been there?
- [22:15]
Joe Tidey
Well, there are two countries that have made bitcoin legal tender now, El Salvador being the first one in Central America. And I traveled there in 2022 and what we found was that, that this was a country with the president, Nayib Bukele, a huge bitcoin bro, huge fan of the cryptocurrency. I will send to Congress a bill that will make bitcoin a legal tender in El Salvador. In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy. He spent hundreds of millions of dollars on rolling out a bitcoin project and campaign in the country. He gave away $30 worth of Bitcoin to every single citizen and tried to get it moving around and tried to get it happening as the way that people would live their lives. Sadly, that hasn't really happened because what I noticed when I was there and what we discovered was that people were taking the $30 of Bitcoin and instantly converting it back to the main currency, which is the US dollar there.
- [23:13]
Katya Adler
People in my country are hard working and poor.
- [23:16]
Erin Delmore
We are not ready for bitcoin.
- [23:22]
Joe Tidey
Salvadoran people are not educated enough yet on top of that, bitcoin is too expensive. Some people in this country make $3 a day to buy food. You can't buy bitcoin with that. The government wants to impress the world, but they've stolen from public resources, from people's taxes to buy bitcoin. Cash is king in a developing country like El Salvador. So why on earth would you choose to use bitcoin? I think part of the problem is this idea of the volat, because why would I buy my shopping with bitcoin today when that bitcoin might be worth a lot more tomorrow? And that is the problem. The one thing that Bukele has arguably done right, although it's a big gamble and economists in the country aren't very happy about it, is he has spent well over $100 million of this poor Nation's money on buying bitcoin. Got about 5,000 bitcoin now in a reserve, and it's just, in the last few months, started to make money. Just gone into the. Into the black, out of the red. So he's now celebrating this as a giant win. But of course, you never really know with bitcoin. You never know when the next crash is going to come.
- [24:29]
Katya Adler
I'd like you both, please, to dust off your crystal balls. Aaron, we've mentioned this a few times. Part of the allure of cryptocurrency has been that it's a way for ordinary people, never mind those whales, to invest or trade at home, and they could strike it rich. And is that still a possibility? Was that ever a true possibility because of this volatility that we've been talking about?
- [24:53]
Erin Delmore
You know, I think because I cover markets, I get a version of this question a lot. You know, what's hot right now, what's good? And the joke I always make is if I know about it, it's out there. Everybody knows it's of no use anymore. By the time it gets to me. If you are in early and you bet big, it's a really different story than if you're somebody sitting in my chair right now thinking, ooh, spot bitcoin etf. Let me jump in here. There's a real change in time and what could do. But everyone I talked to when I was reporting the SBF case, which I will resume doing this week, told me, look, this is an isolated thing, but do not write off crypto as a whole. This is big, it's formidable, it's here to stay.
- [25:30]
Katya Adler
And Joe, could you say with confidence as much as for any currency, that cryptocurrencies, we might fast forward a couple of years, we might say, yeah, look, it is. It's a safe bet.
- [25:41]
Joe Tidey
Oh, I'm not allowed to say that, am I? I mean.
- [25:44]
Katya Adler
Oh, go on. Just between you, me, and Aaron here.
- [25:48]
Joe Tidey
No, I mean, despite everything that we've talked about, all the crazy crashes and fraud and all the horror shows that we've seen in the past, it's very hard to bet against cryptocurrency, particularly bitcoin. I think that overall, there are thousands of other coins out there, a completely different story. But in terms of bitcoin, it's almost never been safer. And I'm so. I shouldn't say that, because now something bad is going to happen. So anyone listening? It seems, please do not.
- [26:15]
Katya Adler
It seems.
- [26:17]
Joe Tidey
Because of course, my point is that. That the reason I come to that conclusion is because never before have we seen giant, regulated very, very wealthy institutions like US Investment banks, US Investment companies. They are pouring their money into this. And are we going to get to a point with Bitcoin where it's too big to fail? We're certainly not there yet. But it feels as it's being brought into the mainstream more and more and more, it feels like its foundations are being built stronger. But then again, I will caveat everything I've just said because no one knows what could happen next and no one knows if there's going to be another crash.
- [26:54]
Katya Adler
Oh, no. I prefer when you stick your neck out. Joe, I was, I was full of admiration there. Joe and Erin, thank you so much for your time and sharing your crypto wisdom with us today.
- [27:04]
Joe Tidey
Thank you.
- [27:04]
Erin Delmore
An absolute pleasure. Thank you.
- [27:07]
Katya Adler
Thanks for taking the time to listen to this episode of ours. If you want to hit more, search BBC the Global Story wherever you get your BBC podcasts. And don't forget to subscribe so you never miss an episode. Let us know where you're listening from. And if you have any ideas of what we should cover in future programs, send us a text or a Voice note on WhatsApp at 331-239-4480. Or you can email us at the Global StoryBC. Wherever you're listening in the world. This has been the Global Story. Thanks for having us in your headphones. Goodbye.
- [27:50]
Joe Tidey
Hello, it's Ray Winstone. I'm here to tell you about my podcast on BBC Radio 4, History's Toughest Heroes. I've got stories about the pioneers, the rebels, the outcasts, and define tough.
- [28:04]
Erin Delmore
And that was the first time that anybody ever ran a car up that fast with no tires on. It almost feels like your eyeballs are going to come out of your head.
- [28:12]
Joe Tidey
Tough enough for you? Subscribe to History's Toughest Heroes wherever you get your podcast.