FTX runs like a “fractional reserve” bank; its collapse was the “craziest thing” in crypto history – Crypto Megan | Techy Kings

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https://www.youtube.com/watch?v=/Diek2cavYOE


The downfall of FTX, once the world’s third largest crypto exchange, is due to it operating like a highly leveraged “fractional reserve” bank, said Crypto Megan, also known as Megan Nilsson, a crypto educator and consultant.


“The whole issue with FTX is that they run FTX like a bank,” he said. “Banks are allowed to take advantage of up to 90 percent of people’s deposits, and [Sam Bankman-Fried] has carried out his exchange like that.”


Calling this the “craziest thing in crypto history,” Nilsson claimed that FTX CEO Sam Bankman-Fried pumped FTX’s original token, known as FTT, and used it to increase FTX’s value.


“He creates tokens out of thin air, and prints money just like the Fed,” he said. “Then he pumps out the tokens, shows the profits to investors on the balance sheet, collects money from investors, and then takes that money and leverages it to buy more companies.”


Nilsson spoke with David Lin, Anchor and Producer at Kitco News, at the AIBC Summit in Malta.


FTX as a ‘ponzi scheme’


Bankman-Fried also founded Alameda Research, a quantitative trading firm, which is affiliated with FTX. In early November, it was discovered that most of Alameda’s assets consisted of FTT tokens. The firm instead went bankrupt.


“[Bankman-Fried] misused about $4 billion in consumer funds alone to try and bail out his failing hedge funds [Alameda],” claims Nilsson. “The exchange is not backed by US dollars, and they have no proof of funds so far. There is no transparency.”


He further suggested that Bankman-Fried may have taken FTX users’ money and leveraged it to make risky trades.


“In this case, he took user funds and leveraged them, it was pure gambling,” he said. “The only way this works is through this Ponzi scheme.”


Binance vs FTX


While Nilsson is critical of FTX and the way it handles client funds, he has a more positive view of Binance, FTX’s competitor.


“I’ve been using Binance since the beginning, and they have high liquidity,” Nilsson said. “Nothing is untouchable, but… they don’t throw money in a bull market like crypto.com, or like FTX.”


Binance was a leading player before the fall of FTX. Binance CEO Changpeng Zhao, commonly known as CZ, tweeted earlier this month that his company would liquidate its holdings of FTT, the original token of FTX. This caused the price of FTT to collapse, triggering the failure of Alameda and FTX.


“It was almost all the Tweets that triggered everything,” Nilsson said. “That’s what triggered this whole cascading effect. Sam Bankman-Fried came out and he had a Lehman Brothers moment… and in less than 24 hours, it was all over.”


To find out Megan’s Bitcoin Crypto investment thesis, watch the video above.


Follow David Lin on Twitter: @davidlin_TV


Follow Kitco News on Twitter: @KitcoNewsNOW


Disclaimer: The views expressed in this article are those of the author and may not reflect the views Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a request to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accepts no responsibility for loss and/or damage arising from the use of this publication.



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