The Economist - USA (2021-12-18)

The Economist December 18th 2021 Holidayspecials 53

tiny”. He hired alawyer anda compliance officer

amonghisfirsttenstaffersandeven“putona suit”to

meetregulators.Itwas“painfulattimes”towatch

whatmorefreewheelingcompetitorsweregettingup

to,hesays.Hisintuitionhasbeenborneout:inrecent

months watchdogs around the world, alarmed by

crypto’s giddy growth, have started tightening the

noose.Chinahasdeclaredalltransactionsinvirtual

coinsillegal,andAmerica’sSecuritiesandExchange

Commissionisseekingnewpowerstoregulatewhat

itschairmancallsthe“WildWest”ofcrypto.

MrArmstrongnowsayshewantstobean“educa­

tionresource”forregulators,hintingthathewillseek

toinfluencetherulesastheyarecreated.Thatisnot

somethingtheotherfounders’offshoreexchangescan

easilydo.SBF,forhispart,acceptsthatlocalclamp­

downscouldverysoonhavepracticalimplicationsfor

ftx: wereHongKongtogothewayofmainlandChina,

itmighthavetorelocatemostofitsstaff,whichcould

wellhappen“acoupleofyearsfromnow”.

theendgame

The uncertainoutlook leavesthefoundersmulling

manyquestions,notleastwhatimpacta firmerregula­

torycrackdown,oraprolongedbitcoinbust,would

haveontheirfortunes.Allarehugeonpaper,butMr

Armstrongistheonlyonewhosewealthisliquid(he

sold$292m­worthofsharesinCoinbaseduringits

stockmarketlistinginApril2021).CZ’sisallheldin

cryptocurrencies,withjusta fewthousanddollarsin

cashtopayfornear­termexpenses.SBF’streasureis

mostlysharesinhisprivatefirm.MrHayesallegedly

withdrew$140mfromBitmexalongwithhisco­foun­

ders,accordingtoearlyinvestorsinthefirmwhosued

it in 2019 (the lawsuit was settledout ofcourt in

December2020).

Equallyhardtopredictiswhatthequartet’slegacy

mightbe.Willoneormorebecomeaniconofglobalfi­

nance(likeJamieDimonofJPMorganChase),a trans­

formerofourwayoflife(likeSteveJobs,whoplaceda

smartphoneineverybody’shands)orevena reinven­

torofrocketscience(likeElonMuskorJeffBezos),

oncetheyhanguptheirsneakers?

MrArmstrong,anadmirerofMrMusk,shareshis

ethosmostclosely:heissavingthebulkofhiscapital,

hesays,for“moonshot­likeprojects”or“philanthrop­

icstuff”.Sourcessayheisinto“longevity”andbiology,

and,likeTesla’sboss,enjoyslearningaboutfieldshe

doesnotknowbycanvassingexpertswhodo.Here­

centlyhungoutwiththefoundersofWhatsApptoun­

derstandhowthey“builta globalproduct”.

CZ,meanwhile,hasnograndplanstosplurgehis

wealthinspace,orindeedspend itanyotherway:

“Anythingover$100mI don’tneed.”Heintendstodo­

natetheresttomedicalresearchandcharities.SBF

maydosomethingsimilar.Avegan,hevaluescauses

suchascuringtropicaldiseases,boostingpandemic

preparednessandimprovinganimalwelfare.

Thecryptocontest,however,isfarfromover.Just

likeeliteplayersofTexasHold‘Em,allfourfounders

havesofarkepttheirmostimportantcardscloseto

theirchests,takingbiggamblesonlywhenthepayoff

seemedworththerisk.Buttocomeoutontheother

sideofthecryptoboomwithalltheirchips,theywill

needmorethanprobabilisticgeniusanddiscipline.

Forwinninga fullgameofpokerisoftenlessabout

skillthanpersistentluck.n

Hong Kong’s amateur league, practises yoga daily and
has just taken up kiteboarding. He wears tightfitting T­
shirts  and  luxury  watches.  His  favoured  tipple,  how­
ever,  is  a  far  cry  from  Bond’s  martini,  shaken  not
stirred:  “low­intervention”  wine,  made  using  few
chemicals.  In  2018  he  kitted  out  Bitmex’s  flagship  of­
fice in Hong Kong with a giant aquarium featuring live
sharks, evoking a Bond villain rather than the spy him­
self. His distaste for discretion contrasts with the tam­
er temperaments of the other founders, none of whom
own cars, prestigious properties or predatory fish. SBF
shares a flat with friends from a previous job. CZ uses
only one room of his rented flat. He does, however, like
to splash out on gadgets: six iPhones adorn his desk.
Mr  Hayes’s  flamboyance  may  help  explain  why
American regulators have not taken kindly to him. But
his  attitude  towards  authority,  the  third  point  of  dif­
ference among crypto bosses, is what riles them most.
In 2020 they accused him, along with his two Bitmex
co­founders,  of  failing  to  run  proper  anti­money­
laundering  controls  on  the  platform.  His  indictment
has angered crypto buffs. He is paying a price for being
the first mover, they say, at a time when rules had yet to
be  written.  Some  even  argue  the  financial  establish­
ment  felt  threatened  by  a  successful  black  man  who
did not mince his words.
But many outsiders reckon he painted a bullseye on
his own back. In 2016 he said Bitmex’s strategy was fo­
cused  on  “degenerate  gamblers”;  at  the  time  the  firm
targeted potential customers based in America, boast­
ing that to “sign up takes less than 30 seconds”. Asked
about  why  Bitmexwas  legally  domiciled  in  the  Sey­
chelles in 2019, he noted that bribing American regula­
tors  costs  more  and  that  the  archipelago’s  price  had
been “a coconut”. Backers dismiss such quipsas show­
manship  on  the  part  of  an  otherwise  profound  man.
The fbi did not like the joke; a year later its New York
chief warned he and his comrades would “soon learn
the price of their alleged crimes will not be paid with
tropical fruit”.
Contrast that with Mr Armstrong, whose business
model is premised on being the most trusted, compli­
ant exchange. From the start, he says, he could see that
the minute crypto got big there would be “a lot of scru­

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Bitcoin volume, $bn

Spot

Derivatives

2019 20 21

Seven-day moving average

Source: Kaiko