FTX’s Week: A Hack, A Criminal Confession, and Contagion

You’d be forgiven for thinking that the FTX collapse couldn’t get any worse… or weirder. C’mon, tens of billions of dollars went up in smoke overnight. How much worse could it get?!?!
Apparently, much, much worse.
SBF is truly making everyone suffer through a never-ending nightmare. Here’s what’s happened since last week’s newsletter.
The Hack
Going bankrupt when you have the ability to literally print money is already unfathomably embarrassing. Getting hacked for $600 million the day after you go bankrupt?
Just laugh and try to hide the pain.
Yes, somehow, someway, FTX was drained for $600 million on Friday night. Since then, FTX has recovered ~$200 million, but… what?
Naturally, there was rampant speculation over who the hacker was and their motivations. Was it SBF attempting to jet off? Was it a rival delivering the death blow? Was it a distraught user or investor taking revenge?
All evidence points to the hacker being a high-level but inexperienced insider, as he had access to the exchange’s cold wallets but also made a rookie mistake in withdrawing the funds that tipped Kraken off to his trail and, according to them, his identity.
The Criminal Confession
Since the collapse, there have been many theories percolating about what went wrong. The most popular of these theories is that SBF was bankrolling Alameda, his investment firm, with customer funds from FTX. Thus, when the mass exodus out of FTX happened, they didn’t have the liquidity available to cover it.
If Alameda CEO Caroline Ellison is to be believed, this is precisely what happened.
As she explains, Alameda had overextended itself by taking out loans to make crypto venture investments. When the markets crashed this spring, and the lenders recalled the loans, Alameda didn’t have the money. So, SBF used FTX’s customer funds to make the payments.
This is so illegal it hurts. It’s so illegal that it’s honestly stunning Caroline would admit this publicly.
And it all but ensures there will be criminal consequences when (if?) SBF is caught.
The regulators are already circling with the DOJ, SEC, the Securities Commission of the Bahamas, and the Bahamas’ Financial Crimes Investigation Branch all on the hunt.
The Contagion
Although it is safe to say that billions of dollars have disappeared due to the FTX collapse, nobody really knows how far the fallout might spread.
There will be dozens of companies that go under or have to be bailed out from this crisis. There will also be companies that are accused of being caught up in this fiasco that will have to defend themselves.
Let’s take a look at a bit of the contagion spreading through the crypto ecosystem right now.

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Is Crypto•com The Next To Fall?

With the sudden and traumatic collapse of FTX, people are on edge right now regarding centralized exchanges.
The exchange raising blood pressures the most right now? Crypto•com.
It’s been an interesting week for Matt Damon’s favorite exchange, to say the least.
“Accidental” Transfer
For the second time in a year, crypto•com made a costly transferring error. While their previous mishap was only for $6 million, this most recent debacle was for $405 million.
Yep, somehow crypto•com accidentally sent 320,000 ETH to fellow exchange Gate.io instead of a cold wallet as intended. They’ve since recovered about 285,000 ETH.
This begs a few questions:

21% of crypto•com’s reserves are in SHIB??? A completely useless meme coin??
Thankfully, there appears to be a logical explanation. As crypto•com explains, because the reserves are held 1:1 with customer funds, they are determined by what customers buy and hold. So, crypto•com has to hold 21% in SHIB because 21% of user funds are in SHIB.
Makes sense, but what doesn’t make sense is why so many people are still buying SHIB.
Should You Be Concerned?
People are spooked right now by any sketchy exchange behavior and for good reason. FTX was seemingly doing great... until it wasn’t, and a lot of people lost a lot of money as a result.
The last thing anybody wants is to lose money, and it appears that after the ETH cold wallet fiasco, people are scrambling to get out of crypto•com to be safe. It hasn’t reached bank run levels yet, and CEO Kris says everything is normal, but still, something to keep an eye on.
In our opinion, you are better off safe than sorry. It remains to be seen how bad the FTX contagion is, the CRO exchange token is down 40% over the last week, and CEO assurances aren’t worth the paper they're printed on. After what happened with FTX and FTT, do you really want to hold money on another exchange with mass withdrawals and a crashing native token?
Play it safe and get out now. You can always put money back on crypto•com later, but you won’t be able to get money out if it goes belly up.
Don’t risk learning “not your keys, not your coins” the hard way.

SBF’s DCCPA Bill Still Moving Forward

SBF may be getting purged from crypto, but unfortunately, we are not yet free from his shadow.
That shadow is most apparent in his championed crypto bill, the Digital Commodities Consumer Protection Act (DCCPA).
Industry experts are not a fan of the bill. Let’s look at why.
The DCCPA
The bill, authored by Sens. Debbie Stabenow (D-Mich) and John Boozman (R-Ark), seeks to give the Commodity Futures Trading Commission (CFTC) oversight over the crypto spot market.
At first glance, this sounds pretty good. We’d definitely rather have the CFTC regulating crypto than Gensler and the SEC.
Unfortunately, the bill has many in DeFi concerned:

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