The crypto world has been rocked by scandals this past month. FTX, the crypto platform founded by Sam Bankman-Fried, a billionaire heralded for his effective altruism and thoughtful investments to move the crypto industry forward, was found to be sharing company assets with a sister company, Alameda Research, swindling billions of investor dollars and funds from individual users. The company went from crypto darling to bankrupt in a matter of days, tanking the value of cryptocurrencies and sending the industry into a spiral. The fallout has been swift, with many comparing the collapse to the ill-fated Enron. And the damage disproportionately impacts communities of color.
Are you new to the world of crypto? Don’t worry. Here’s a handy 101 guide.
• Learn more about the racial inequities in the traditional financial system.
• As you watch the crypto space mature, consider: who is wielding power in these spaces. And who is most likely to be harmed.
Crypto companies like FTX have tried aggressively to cater to those seeking quick returns, attracting many marginalized communities disenfranchised by the current banking system. Black Americans, who are half as likely to own stocks, flocked to the platform. By 2021, Black Americans were more likely than their white counterparts to own crypto (The Atlantic). 38% of Black people under 40 own cryptocurrency, compared to 29% of White people under 40 (Boston Globe). Unlike the traditional banking system, which has historically excluded Black people from obtaining credit, building wealth, and adequate customer service, crypto is nameless and faceless. Instead of a credit score or racial profiling, it simply relies on a random string of characters tied to the blockchain. This, paired with the wild swings of the crypto market, offers easy ways for anyone to get in and potentially yield higher returns than the economic options otherwise available – for better or for worse.
And it doesn’t help that celebrities and industries that cater to Black audiences marketed crypto heavily. Jay–Z touted Bitcoin as an opportunity to build economic equity. Others celebrated getting paid in cryptocurrency rather than U.S. dollars (AfroTech). FTX itself invested heavily in marketing just months before its collapse. It spent $210M to buy naming rights for an esports team and $153M to name the stadiums where the NBA’s Miami Heat and Cal Berkeley football teams play (Decrypt). It ran a Super Bowl ad (which did not age well) and hired major celebrities, including Shaquille O’Neal, Stephen Curry, Tom Brady, and Naomi Osaka, to tout the brand. Now, all these celebrities are facing a lawsuit (Vulture).
The collapse also had an irreversible impact on the Bahamas, where FTX was located. The islands are a tax haven, meaning foreign companies can deposit their money in local banks and avoid paying taxes on those funds. The founder of FTX, like many billionaires, took advantage of this opportunity. They moved the company headquarters to New Providence, an 80-square-mile island, and dominated. Employees bought dozens of multi-million dollar homes (some using FTX funds), spent over $100,000 a week on catering, and created a private shuttle service to offer their stakeholders transportation on-demand. To keep up with the growing company, the resort kept a restaurant 24/7 to accommodate chaotic work hours. Now that the company has folded, employees have moved away, leaving Bahamians in the wake. The WSJ has a few articles that note the impact on locals.
The current financial system is inherently inequitable, so alternatives like decentralized financial platforms have potential. But when a collapse like this leaves those most marginalized to pick up the pieces, how much better is it than the traditional financial systems that already fail us? And although I believe crypto should be more regulated by the U.S. government, I also believe their authority will do little to protect marginalized communities. We must advocate for more equitable financial structures – old and new – that provide equal opportunities for economic sustainability.
• FTX, a crypto platform founded by Sam Bankman-Fried, went bankrupt after allegations of misappropriating user funds, sending the crypto industry into a tailspin.
• The accessibility of cryptocurrency has appealed to consumers often excluded from traditional financial services.
• The get-rich-quick mentality, paired with limited regulation, leads to marginalized communities disproportionately harmed by crypto schemes.