Is this the end of crypto?
The Economist published that headline in the wake of the recent collapse of FTX, one of the world’s largest and most highly publicized cryptocurrency exchanges.
“Never before has crypto looked so criminal, wasteful, and useless,” the magazine observed.
But looks can be deceiving.
A rogue among rogues
Make no mistake about it: FTX’s crash is bad for everyone with so much as a toe dipped in crypto. In short, FTX loaned billions of dollars to its trading arm — something it pledged not to do — and couldn’t come close to covering when customers tried to pull their money out in droves.
For a minute, it looked like FTX might get bailed out by selling itself to its biggest competitor, Binance, which sounds more like a hookup app than a serious financial enterprise. But after taking a look at FTX’s books, Binance’s chief strategy officer told the AP, “This is the result of a rogue actor breaking every single basic rule of fiscal responsibility.”
FTX’s rogue-in-chief was founder and CEO Sam Bankman-Fried, aka “SBF,” the puffy-haired son of Stanford professors who employed Daniel Friedberg as his chief regulatory officer. Those in the online poker community will remember Friedberg for his role in attempting to minimize restitution stemming from UltimateBet’s insider-cheating scandal in the mid-2000s.
“Friedberg’s presence on FTX’s payroll means Sam Bankman-Fried either didn’t do his due diligence before hiring, or he knew of Friedberg’s past sins and didn’t care,” wrote Coingeek’s Steven Stradbrooke in August 2021. “Neither of these options paints Sam Bankman-Fried in an overly flattering light.”
Seemingly adhering to a guiding principle of “if you brand it, it will come,” FTX splashed its name on sporting arenas (most prominently, the Miami Heat’s), Formula One cars, and the blue polo shirts of Major League Baseball umpires. It attracted celebrity pitchmen like Tom Brady and Steph Curry, both of whom are named as co-defendants in a class action lawsuit that alleges FTX and its collaborators took “advantage of unsophisticated investors from across the country” to add more participants to what the Bay Area News Group plainly called a “Ponzi scheme.”
Breaking: Sam Bankman-Fried sold $300 million FTX shares in a fundraising spree last year, people familiar with the matter say. He told investors it was a reimbursement. https://t.co/CKuB1a75Uv
— The Wall Street Journal (@WSJ) November 18, 2022
Congress is now poised to investigate FTX’s collapse, with House Financial Services Committee Chair Maxine Waters saying that the country needs “legislative action to ensure that digital assets entities cannot operate in the shadows outside of robust federal oversight and clear rules of the road.”
Dodging bullets without abandoning crypto
In the immediate aftermath of the FTX crash, two sports betting companies — BetDEX and PlayUp — seemed to be at risk of collateral damage. FTX had either invested or contemplated investing in them, but it seems as though both may have dodged a bullet.
Before the crash, it was widely reported that BetDEX, a decentralized, crypto-centric sports betting exchange co-founded by former FanDuel CEO Nigel Eccles, was in line for a significant investment from FTX. As it turns out, that investment was fully secured before this month’s meltdown.
“FTX participated in our seed investment round (along with Paradigm, Multicoin, Lightspeed, and others) in November 2021,” BetDEX CEO Varun Sudhakar said in a statement released to Sports Handle. “That capital has been in hand for over a year. … For BetDEX, the reason to build on blockchain rails … was due to user benefits the underlying technology could provide. Specifically, it can lead to a sports betting ecosystem where winners are welcome, fees are low, and users are always in control of their funds. That hasn’t changed with FTX’s downfall.”
As for PlayUp, which accepts wagers stateside in Colorado and New Jersey, it seems to have been rewarded by its own internal dysfunction. FTX, which invested in the Australian sports betting company, was reportedly on the brink of acquiring it in 2021 when the sale fell through, which led PlayUp to file a lawsuit against its former CEO, Laila Mintas, accusing her of sabotaging the transaction. In turn, Mintas filed a counterclaim, stating that it was PlayUp CEO Daniel Simic whose actions led to the deal’s demise.
On LinkedIn last week, Simic wrote, “This last week has been a massive eye-opener for me with the collapse of FTX. I hate to use the word ‘entrepreneur’ because it sounds like a cliche. A real entrepreneur is a person who thoroughly believes in what they are doing because it has a purpose and will make an impact whether it makes money or not. The investors invest in the entrepreneur because they want to make money. The world needs both. I don’t agree nor deny FTX ‘s approach, but the fact is we are all talking about it today and the outcome will be a change for the good long into the future — that no one can deny.”
‘Don’t see it having much of an impact’
Mintas has since gone on to co-found a B2B sports betting and iGaming platform called PlayEngine. She now serves as the new company’s CEO and has declared it “fully crypto-capable,” adding, “I strongly believe that is the future.”
As for FTX’s potential impact on the relationship between crypto and sports betting, she said, “I don’t think that affects the crypto market overall. The crypto movement is unstoppable at that stage. There are banks that have gone bankrupt in the past, so why should that be different in the crypto space? You have to differentiate between the cryptocurrency as an asset, where we have the approach of decentralization, and the trading platform itself, which is the company that enables it and which is a company with all its up and downs.
“Crypto betting is legalized in several countries around the world, including Ontario in Canada. Obviously, it’s a sad day for the crypto space, but I think we will overcome that. If you look into the parallels that we had in the early internet days, there were a lot of things that went wrong, but it made its way eventually.”
Thawfeek Ameen has been involved in the cryptocurrency sector since 2014. Suffice to say, he’s endured more than one boom-bust cycle, noting that downturns are “the time when real businesses get built.”
“This FTX thing is gonna really set back the industry,” said Ameen, chief marketing officer for Betswap, which operates its own peer-to-peer, crypto-based sports betting exchange. “A lot of people are going to walk away, be scared, panic. [But] sports betting gamblers and iGaming people already use crypto. They are not stopping. They’re using it as a payment; they’re not using crypto as an investment. The people who walk away are using it as an investment. But people who are using it as a tool for transferring money, they are not going to walk away.”
Echoing a sentiment voiced by The Economist, which (spoiler alert) doesn’t really think this is the end of crypto, Ameen said, “The underlying technology of blockchain is going to stay,” adding that he welcomes the increased regulatory scrutiny that will come with FTX’s collapse because “no more scammers will be in the business.”
Both Mintas and Ameen touch on a pair of important points. First, it is critical to distinguish between crypto as an investment vehicle and as a form of transactional currency that is exchanged between people. Second, with anything big, bold, and new — especially when that thing involves a technological concept that is difficult for most people to quickly wrap their heads around — there are bound to be minor hiccups and major hurdles on the path to widespread adoption.
As was the case with legalizing sports wagering in general, foreign markets are a lot further along than the U.S. when it comes to the use of cryptocurrency in sports betting. This helps explain why Jed Nosal, a partner with the international law firm Womble Bond Dickinson, thinks FTX’s collapse will be but a blip on the radar of American sports bettors.
“I think that the market is so far off, at least in the U.S., from accepting cryptocurrency as tender for actual wagers that I don’t see it having a direct impact on the industry the way it operates now,” said Nosal. “It may push off plans for that type of currency to be accepted for wagers in the future, but for now, not a lot of states authorize it, so I don’t see it having much of an impact.”
