According to Arthur Hayes, the former CEO of BitMEX, anyone who was familiar with crypto trading had a “spidey sense” that something was off with FTX, the now bankrupt digital asset exchange. Hayes claimed that the exchange was “a little bit shady,” and most investors were blinded by greed.
During a recent guest appearance on a podcast, Hayes launched a scathing attack on the ethics of the broader crypto industry, suggesting that investors were willing to ignore FTX’s founder Sam Bankman-Fried’s methods as long as he was successful and making them money.
Hayes alleged that investors were aware that Bankman-Fried was running some sort of public image game. However, as long as SBF made them money, they were willing to overlook the disgraced founder’s methods.
Hayes claimed that traders who knew about trading knew that there was latency arbitrage happening on the exchange, which refers to a trading strategy used by investors to capitalize on minor price discrepancies for the same asset across different markets.
Market makers did not want to trade on FTX, according to Hayes, because they knew they were going to front-run. This stuff was common knowledge, he added. Front-running refers to taking advantage of pre-market knowledge to buy or sell before other trades have been executed.
According to a November report from crypto compliance firm Argus, FTX’s sister trading firm Alameda Research would routinely front-run token listings on FTX.
Arthur Hayes Claims…
Hayes alleged that everybody knew that the exchange was a little bit shady, but it did not matter since they were still around. FTX’s valuation ballooned to $32 billion by early 2022 before collapsing in November of last year following a selloff of its FTT token and a liquidity crunch on the exchange that revealed the company did not hold one-to-one reserves of customer assets.
Bankman-Fried has since been arrested and charged with 13 financial crimes related to the exchange’s collapse. The founder has pleaded not guilty to all charges and is currently awaiting a trial scheduled for October.
In various interviews following FTX’s demise, SBF blamed the liquidity crisis on mistakes and mismanagement but denied knowingly breaking the law or misleading investors.
To improve its image, FTX had used endorsements from celebrities like Tom Brady and Larry David, while Bankman-Fried was actively courting prominent politicians and regulators across the U.S. and donating hefty amounts of money to various charities.
Hayes suggested that in the future, it may be possible to spot people who fit that type of archetype and call it out before billions of dollars are gone again. However, in the case of Bankman-Fried, people did call it out. It is just that everybody stood to make a lot of money if he was successful, whether they agreed with his business perspective or not.
Hayes explained that if you were a TradFi person, you wanted a foothold into crypto and wanted your type of person in charge of the leading exchange. If you were a crypto person, you thought that Bankman-Fried had the ear of regulators globally and could help push the agenda for crypto. Therefore, everybody was invested in him being successful and was willing to overlook the disservice.