Cryptocurrency custodial company BitGo says that it has managed to recover $740 million in assets lost by the failed cryptocurrency exchange business FTX, the company that was owned by Sam Bankman-Fried. And the New York Times is reporting that FTX invested $11.5 million in the parent company of Farmington State Bank in Washington State. And such outside investments will be hard to get back.
The problem for FTX investors is not simply that the firm’s stock crashed. That paper based wealth is good for good. Such losses on stock markets occur frequently.
But the big question over the fall of FTX is “what happened to all of the money that people left with the company?” FTX was a crypto bank, so to speak, a place where people could park their virtual assets. But unlike with banks, there is no regulation over the handling of cryptos and FTX is said to have moved people’s cryptos around, basically that the company spent their money.
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Now a number of currencies like Bitcoin and Ethereum were recovered.
As for the $11.5 million invested in Farmington State Bank, the Times reported that at the time, Farmington was the nation’s 26th-smallest bank out of 4,800. Its net worth was $5.7 million, according to the Federal Deposit Insurance Corporation.
So, why did FTX, which was incorporated in the Bahamas, put any money into such a small bank? Could this have been about money laundering? Or was FTX just trying to hide assets and if so were these assets money that actually belonged to clients?
Everyone knows that when you put money in the bank the bank then uses those funds to make money. Banks loan out that money at interest rates higher than whatever return they offer you. This is how the world goes around, with money made available for home mortgages and small business loans.
But banks must be transparent. There are numerous laws and regulations – including international regulations set by treaties – that require all banks, large and small, to report all of their operations. Banks must let governments know what they do with any money that they bring in and exactly how much money comes and goes.
But this is not the case with cryptos. Cryptos are not real and are still unregulated. They exist in the virtual world of the Internet. But people cannot just keep them on their own computers. They need to park their cryptos somewhere which is why companies like FTX exist.
But FTX, and the others, are not regulated and this allows for the crypto exchanges to use people’s accounts in various ways without revealing what they are doing with the funds.