The Spark

the Voice of
The Communist League of Revolutionary Workers–Internationalist

“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx

The Fall of FTX:
Cryptocurrencies Go Bust

Nov 21, 2022

FTX was the second largest cryptocurrency trading platform in the world. It was also associated with over 130 other companies, including a hedge fund called Alameda, that all together were supposed to be worth 32 billion dollars. But when an article exposed how FTX had taken more than eight billion dollars of its clients’ deposits and lent it to cover the losses of Alameda, panic set in. There was a rush by depositors and investors to get out.

Within a matter of days, FTX went bankrupt. Tens of billions of dollars of supposed wealth evaporated overnight. Millions of customers lost their money, as did several big investors.

All this was part of an overall collapse in the entire cryptocurrency sector of finance. In less than a year, over two trillion dollars were lost and big cryptocurrency companies have been toppling like bowling pins.

Cryptocurrencies are a form of currency exchanged through computers. No one controls them, not even central banks. The first cryptocurrencies, such as Bitcoin, emerged after the financial collapse of 2008. They were supposed to be more trustworthy and transparent than the traditional financial system that had been so discredited by the crisis. But criminals and drug traffickers soon discovered that cryptocurrencies were a convenient way to launder money or pay for illicit goods. And when the price of these cryptocurrencies began to rise, they attracted financial speculators out to make a quick profit, which drove the prices higher.

At first big institutional investors, such as banks and pension funds, found crypto to be too risky. But in the last couple of years, big financial companies, such as hedge funds and venture capital funds, began to pour money into cryptocurrencies. Elon Musk famously announced that Tesla Motors bought over a billion dollars in cryptocurrencies, which it later sold. Even some pension funds, such as the Ontario Teachers Pension Fund, placed some of their holdings in cryptocurrencies.

As Crypto tried to go mainstream, it employed big sports stars, like Tom Brady and Steph Curry, actors, like Matt Damon and Larry David, and movie directors, like Spike Lee, in advertisements and testimonials. Bill Clinton and Tony Blair shared the stage with crypto executives, allowing them to hawk their products. Fidelity Life announced that it had opened up 401(k) retirement accounts to crypto holdings.

All this was just one more part of an ongoing economic crisis that has led to the extremely fast growth of the financial sector and increased speculation. Less and less do big capitalists use the profits that they make out of the exploitation of their workforce for productive investments. To these capitalists, those kinds of investments are just not profitable enough. Instead, they use that great mass of money to speculate with.

Added to this speculation are the trillions more in dollars that the capitalists have gotten from their governments and central banks, especially during the COVID crisis of 2020… under the guise of “saving” the economy. The capitalists poured those trillions into more financial speculation, producing multiple speculative bubbles.

Now, it seems, that speculative boom has turned into a bust.

Nobody knows how much the crypto carnage will worsen financial instability or set off an economic collapse. “We just don’t know,” admitted Michael Barr, the Federal Reserve’s top financial regulatory official, at a Congressional hearing about the crypto collapse. Because nobody knows what big financial companies have taken losses from this collapse, or how big those losses are.

But one thing is clear: anything that causes the megabanks on Wall Street to pull back from lending to one another or to other major companies—out of fear that the institution has dangerous crypto exposure—could cause the same contagion effect that occurred in 2008… or even worse.