The Crypto Comeback

[Music]. from The New York Times I'm Sabrina. Tavern and this is the. [Music]. daily FDX founder Sam bankman freed was. sentenced to 25 years in federal prison. when the influential cryptocurrency. exchange FTX collapsed in. 2022 it lost billions of dollars in. customers money The Man Behind one of. the biggest Financial frauds in American. history lost $10 billion of customer.

deposits all while living a relatively. lavish lifestyle in the Caribbean. cryptocurrencies have spent the better. part of this year in a tail spin fueled. by Financial losses of public but in a. surprising twist earlier this month. those customers were told they would get. their money back today my colleague. David yaffi bellany on what was behind. this change in fortune and on what it. says about the improbable Resurgence of. crypto it's Tuesday May.

21st David welcome back to the show. thanks so much for having me so the last. time we spoke Sam bankman freed the. disgraced founder of the company FTX and. in many ways you know the face of the. crypto industry was about to go on trial. for stealing money from his customers. and it really looked like that money was. never going to come back billions of. dollars disappeared but then something.

surprising happened tell us about it. you're right when FTX collapsed. customers were in total despair you know. they were convinced they were never. going to see this money again and Sam. bankman freed was convicted of fraud. stealing this money and sentenced to 25. years in prison but after the company. collapsed a team of bankruptcy. professionals came in these are people. whose specialty is going into collapse. companies figuring out what went wrong. and trying to put pieces back together. together and over time they started.

cobbling together a pool of assets. Investments that Sam had made in other. companies cryptocurrencies that he had. stashed over the years and as they did. this they built up a large supply of. assets and what they announced just a. few days ago is that not only are they. going to be able to repay customers but. they'll be able to repay them in full. with interest incredible and this is. really a shocking conclusion to this. whole Saga and it's line with a few.

really surprising things that have. happened in the crypto industry over the. last year or so since it reached its low. point back in November 2022 with ftxs. collapse okay so let's dig into that. explain to us how this failed company. ended up being able to return billions. of dollars how did it do that so the. first thing that's important to. understand is where the money went it. wasn't simply vaporized sure you know. some of it was spent on expensive. material possessions but not all of it.

Sam put a lot of this money into. investments in other startups. investments in. cryptocurrencies and this was stealing. this was money he wasn't supposed to use. it was supposed to be set aside for. customers right but some of those. Investments actually turned out to be. really good so give me an example what. turned out well one of Sam bankman. Freed's pet issues was artificial. intelligence he was obsessed with AI he. was convinced that it was a Potential.

Threat to civilization and his version. of a solution to that problem was to. invest in AI companies that were. committed to developing the technology. responsibly and so one of the companies. that he invested in was called anthropic. and he put in about $500 million in. 2021 now over the last three years the. AI industry has exploded and companies. like anthropic have become much much. more valuable and so just in the last. few months those bankruptcy experts who. are now running FTX sold off a portion.

of that stake for close to a billion. dollars so that's a tidy profit on the. investment that FTX initially made okay. so part of the explanation is AI and. kind of riding the AI wave what about. all of the money FTX had in. cryptocurrencies I mean it was an. exchange for cryptocurrencies after all. yeah I mean in theory FTX was supposed. to be sitting on a huge number of. cryptocurrencies because that's what. people were storing on the platform and.

it turned out that a lot of those assets. had disappeared or they've been. converted into other cryptocurrencies. and so it wasn't as simple as the. Bitcoin that you'd stored on the. platform was still there but one. cryptocurrency that bankman freed. maintained a large supply of was called. salana you know back when FTX collapsed. salana was trading at something like. under $20 per token really at a low but. since the collapse salana has surged. again and in March it hit about $200 wow. and the estate sold a large quantity of.

it and generated billions of dollars to. return to creditors from that sale and. the rise in salana is really part of a. larger story in the crypto Market a. Resurgence that's happened over the last. year that's really shocked people and. has sent these volatile assets back to. some of their all-time highs okay so. essentially it's the crypto Market. that's going to give FTX customers their. money back at least in part there's been. this upswing in the pendulum in recent. months and that is what accounts for.

this reversal of Fortune but explain to. me how that's possible how that's. happened with crypto I mean the last. time we talked crypto was really down. for the count so it's a combination of. factors one is a kind of perception. within the crypto industry that the Bad. actors have been washed out Sam bakman. freed is in jail he's serving his. sentence changen Pang Xiao who's the. chief executive of another troubled. crypto company binance also just got.

sentenced to prison time and so there's. this feeling you know right or wrong in. the crypto industry that a new chapter. is beginning and that the bad guys are. out of the picture but the real driver. of this kind of market-wide surge is. Bitcoin the original most important most. valuable. cryptocurrency and the cause of the. surge is a recent court case the outcome. of this case has essentially brought. Bitcoin Into the Heart of the US economy. and mainstreamed it in a way that it's. never been.

before so tell me about this case so the. case involves a crypto company called. grayscale and what grayscale wanted to. do was offer a Bitcoin ETF that's an. exchange traded fund which is. essentially a basket of assets that. somebody can invest in instead of. investing in the assets themselves. directly you're investing in the basket. that contains the asset so it's a little. bit.

indirect and in the case of Bitcoin it. would mean you could just go onto your. brokerage account and buy a share in a. basket of Bitcoin you don't have to. worry about downloading an online wallet. and figuring out the complications of. cryptocurrencies this was a way to open. up the possibility of Bitcoin investment. to more people but the federal. government was very resistant to this. you know ETFs are a pillar of the. mainstream Financial system MH they a.

vehicle where people store their. retirement savings and other crucial. Investments and the federal government. basically said this is too risky we. don't want people's money to be locked. up in this market that is super volatile. and that just over the last couple of. years has plunged. significantly right I mean it just had. this massive crash recently right so you. wouldn't really think that like putting. these things directly into American.

retirement accounts would be a good idea. so makes sense to me that the government. objects so what happens well there's a. huge buildup to the resolution of this. case Financial giant Fidelity now. entering a new crypto race on Wall. Street over these Bitcoin ETFs while. this case is pending a bunch of other. companies jump on board and apply to. offer their own Bitcoin ETFs and that. includes pillars of the mainstream. Financial system that have generally.

been cautious about dealing with digital. assets Asset Management giant black rock. took the first steps yesterday to launch. a spot Bitcoin off a sudden Flor have. activity or race if you will to file the. spot you the whole crypto industry is. watching it's considered very very. crucial Wall Street is getting invited. in anticipation of The Greatest Show on. Earth and so everyone in the industry is. waiting to see what the court will do. and finally the ruling arrives in August. we're following new developments in the. crypto world today as a US federal court.

paves the way for the first ever Bitcoin. ETF and the industry wins a watershed. moment for the crypto industry happening. today Bitcoin ETFs set to begin trading. uh in just about 2 hours from now it was. a very long road to regulatory. approval the court finds essentially. that the SEC has failed to meet its. burden to show that these investment. products shouldn't be allowed that. they're unsafe for the investing public. and what that means is that in January.

the SEC kind of grudgingly says okay you. know our hand has been forced and these. companies can go out and offer Bitcoin. ETFs and so the ETFs start trading. shortly after and they become really. really popular JP Morgan points out. there's now been a total of 20 billion. dollar of inflows into these ETFs that's. excluding people are seemingly very. enthusiastic about putting their savings. into these investment vehicles Fidelity. and Black Rock and the other companies.

that are offering them have to buy lots. of Bitcoin in order to support these. investment offerings and as a result the. value of the cryptocurrency Bitcoin. raced to an all-time high today. bitcoin's price surges. 72,000 the latest it hits its all-time. record which is about $770,000 and. remember this was an asset that was. dipping below. $20,000 back a year and a half ago in. November 2022 and so it's just an amaz. in Surge so suddenly Fidelity and black.

rock are trading these investment. vehicles these ETFs with Bitcoin at the. heart of them which means that Bitcoin. is no longer Fringe it's mainstream. absolutely and this is a huge change. because during the last crypto collapse. one thing that was striking about it was. that people who worked in the crypto. industry or had investments in crypto. they suffered as a result but the rest. of the economy was basically walled off. the fact that Bitcoin lost almost all of.

its value in a year that didn't affect. normal people because most normal people. didn't own Bitcoin and so what this. change has done is set the stage for. Bitcoin to essentially affect a much. broader swath of the population and the. precedent set by this major victory and. the introduction of Bitcoin ETFs is. maybe the crypto industry can get What. It Wants maybe it can defeat the federal. government and really intersect with. every other part of the mainstream. economy.

which is pretty remarkable considering. where it was just two years ago. absolutely I mean we were at a point. where people were declaring that crypto. is dead that always sounded a little bit. premature to me but the turnaround we've. seen over the last year is nothing that. anyone ever expected and this time the. stakes are even higher. [Music].

we'll be right. [Music]. back so crypto as it turns out is not. dead and in fact it's no longer even. Fringe right it's mainstream what does. that mean David for the next time. there's a big crypto crash I mean I'm. assuming the federal government is going. to feel some pressure to be on the hook.

for it because these aren't just. speculative internet Investments right. they're solid retirement Investments for. average Americans so there are two. schools of thought on this and how it. could go if you ask a crypto proponent. they would point out that even though. crypto has endured these sort of boom. and bust Cycles over the years the. overall trend is up you know if you. bought Bitcoin 10 years ago you've seen. massive gains and so giving more. Americans a way to access that asset is.

a potentially positive thing that's the. industry argument but certainly there. are a lot of people who are really. really concerned about this because last. time crypto crashed the rest of the. economy the mainstream economy was. essentially walled off if you owned. crypto and you'd experimented with. digital currencies in some cases you. lost all your savings and really. suffered but everybody else you know. they might not even have noticed and. that could change I mean now that the. Bitcoin ETFs are rising in popularity. you know more and more people are likely.

to be connected to this volatile. industry and so another downturn could. ultimately harm a much broader SWA of. the population so a bigger chance for. contagion to the rest of the US economy. should something go wrong with crypto. yeah exactly I mean is the ETF alone. going to bring down the American economy. probably not but it's a first step in. the direction of a kind of more systemic. risk okay so what are we really looking. at here I mean now that these Bitcoin. ETFs have been approved are we looking.

at a future where other forms of crypto. enter the mainstream as well there's. actually a broader legal battle that's. going on between the federal government. and the industry you know the SEC is. arguing in all sorts of court cases that. a cryptocurrency is no different from. you know stock essentially like a share. in a company that you might buy and that. it should be regulated like that meaning. that someone can't just create a new. cryptocur and start selling it it has to.

be properly registered they have to make. all sorts of disclosures associated with. this product all of those rules that. apply to public companies that are. trading their shares on Wall Street. right and the agency frames this as a. matter of investor protection this is. how you ensure people know what they're. buying when they kind of get into this. weird and volatile industry MH crypto. people are opposed to that and they have. a few different visions of how the. industry should actually be regulated in. one version they kind of compare.

cryptocurrencies to Collectibles like. beanie babies or trading cards and say. that the way in which a cryptocurrency. acrise value over time is more akin to. that than to you know shares in a. company that rise in value some say we. need entirely new rules Congress should. start from scratch and come up with a. new system just for governing. cryptocurrencies so essentially this is. a very big new battle the government's. saying the wild west needs a sheriff but. we still don't know if it's going to get.

one right if it's going to Prevail well. the government is trying to be that. sheriff it is actively suing a whole. bunch of crypto companies including some. of the biggest in the United States the. most obvious example is coinbase the. largest US crypto company currently. getting sued by the SEC and the. potential outcome here is really really. damaging for these companies the. government is arguing that they've been. operating as illegal Securities. exchanges and if the government prevails. we could see massive fines on such a.

scale that they could even bankrupt some. of these companies and the ultimate. outcome there is crypto getting driven. out of the US companies moving offshore. all those weird startups with dog names. relocating to Singapore or you know. whatever jurisdiction happens to be. flavor of the month and in fact we're. already seeing that to some extent there. has been a flight from the US by a few. crypto startups that are kind of worried. about how this might work out but then. there's another scenario the one that.

the Bitcoin ETF Victory almost previewed. for us where the crypto industry. actually wins you know the the federal. government is unable to prove that these. digital currencies should be regulated. like Securities and the industry. flourishes in the US it becomes more and. more mainstream and every day Americans. start pouring their savings into it. which again seems quite risky it's. definitely a major major risk and even. when the SEC approved the Bitcoin ETF.

back in January Gary gendler the SEC. chair who's this huge villain in the. crypto industry he you know very opposed. to the kind of expansion of the industry. he kind of couched his approval of this. product with all sorts of warnings these. products are dangerous bitcoin's price. goes up and down all of the time it was. a sort of moment of victory for the. industry that was framed by the SEC as. this real cautionary episode where will. this be decided David these cases are.

likely to reach the Supreme Court I mean. it's difficult to predict of course but. given the way some preliminary rulings. have gone I think that we're likely to. see a sort of split situation where we. have Divergent rulings coming from. different judges and that's the type of. scenario where you ultimately need the. Supreme Court so David going back to the. beginning of our. conversation all of this explains why. customers of FTX are going to get their. money back should did this change the. way we think about Sam bankman freed I.

do remember him saying that he just. needed a little bit more time to come up. with the money and he was kind of. laughed at and and then he went to jail. but now that investors are getting their. money back crypto is back up and kind of. really in the swing of things was he. right I think Sam bankman freed would. love to claim this news as a moment of. vindication for him but it really isn't. frankly legally it doesn't actually make.

that much of a difference you know this. issue of recoveries for customers came. up at trial and what the judge said. basically was that if you rob the bank. you steal $1,000 and you use the ,000 to. buy lottery tickets and you end up with. a million dollar and you can repay the. bank you still robbed it in the first. place you know there are laws in place. preventing that because most of the time. you don't end up winning the lottery on. the other hand there is kind of an. alternate history here a version of. events where there isn't a bank run on.

FTX in November of 2022 and the company. doesn't collapse in which all of these. Investments That SP SPF has made you. know profit to some degree and he. actually does get the money back and is. in a position to repay people it's a. totally theoretical universe and who. knows if it ever would have played out. that way maybe he would have just stolen. more money but there's definitely a. certain irony in the way that things. have played out if the timing had been. slightly different you know the whole.

course of spf's history could have been. changed so that's one irony but there's. also another which is that what the. crypto industry has achieved over the. past couple of months is essentially. what Sam bankman freed set out to do in. the first place like the reason he. became the face of crypto went before. Congress advocated for regulation is. that he wanted crypto to go mainstream. he wanted average Americans to have. access access to it through his platform.

and now they sort of do yeah absolutely. crypto is as important as it's ever been. it's becoming more and meshed in the. American economy people are pouring. money back in the numbers on the lines. are going up but I would caution against. seeing crypto success only in terms of. How High the price has gone or how much. money ftxs customers might get back. because crypto was initially sold to the. public by evangelists who describe it as. a system that was supposed to be about a.

lot more than just price it was supposed. to transform Finance overhaul how we're. using money you know offer access to the. financial system to people who' been. locked out and so far it just. hasn't the industry's never actually. produced something that Americans really. embraced as a practical use I mean for. most people this is just an investment. and the industry's role in the economy.

has expanded in ways that are. potentially dangerous and it's done that. without actually solving any of these. problems or answering any of these. unanswered questions that have lingered. for years at this. [Music]. point David thank you thanks for having. me Sabrina. [Music].

we'll be right. [Music]. back here's what else you should know. today on Monday the chief prosecutor at. the world's top criminal court announced. that he was seeking arrest warrants for. the leaders of both Israel and Hamas on.

charges of crimes against humanity the. request must still be approved by the. judges from the international criminal. court and that could take months but it. represents one of the harshest rebukes. to date of Israel's war strategy and of. its leader Benjamin. Netanyahu and Iranian authorities sought. to project a sense of order and calm. after the deaths of the president and. foreign minister in a helicopter crash.

over the weekend the country's first. vice president assumed the role as. acting president and new presidential. elections were scheduled for June. Iranian State media reported on Monday. that the crash happened because of a. quote technical failure the deaths leave. the country without two influential. leaders at a particularly tumultuous. moment of international tension and. domestic discontent although analysts. and Regional officials expect little. change in Iran's foreign or domestic.

policies today's episode was produced by. Will Reed Olivia Nat Jessica Chung and. AA chatra it was edited by Brendan. clingen Berg and Lisa Chow contains. original music by Dan Powell and Marian. Lozano and was engineered by Chris Wood. our theme music is by Jim brunberg and. Ben Lanser of wonderly.

that's it for the daily I'm Sabrina. Tavern see you tomorrow. [Music].