Growing disaster: What's next for cryptocurrency after meltdown at FTX?

Does the meltdown of FTX, the second-biggest player in the cryptocurrency industry, spell doom for the burgeoning digital world?

And what is the impact on FTX Digital Markets co-CEO Ryan Salame’s $6 million-plus investment in downtown Lenox restaurants and real estate?

Those questions remained front and center on the minds of many Monday as fallout spread from FTX’s collapse into bankruptcy last week after investors tried to withdraw $6 billion from the crypto exchange in 72 hours — assets that had mostly vanished.

Crypto meltdown: What does it mean for FTX executive Ryan Salame’s $6 million investment in Lenox?

In a phone interview from his home base in New York City, crypto specialist Matthew Homer predicted that the impact of the FTX meltdown on the crypto industry would be “catastrophic.”

Homer is an executive-in-residence at Nyca Partners in New York, a leading venture capital firm connecting companies to the global financial system with over $500 million under management.

Although FTX Digital Markets, a subsidiary of the FTX Group, was not included in the bankruptcy filing of the parent company on Thursday, the government of the Bahamas, where the company is based, froze its assets and appointed a liquidator.

On Sunday, the authorities in the Bahamas said they were investigating potential criminal misconduct surrounding FTX’s implosion. The Manhattan District Attorney’s Office also is investigating, the Wall Street Journal reported.

“In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd., a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred,” the Royal Bahamas Police Force stated.

It’s not clear which particular aspect of the swift collapse of FTX authorities are investigating.

The cryptocurrency world was rocked to its core last week after FTX founder Sam Bankman-Fried, 30, resigned under pressure. His personal wealth, reported as $16 billion last Monday, had evaporated to zero by the end of the week.

Cryptocurrency firm that was home base for Lenox restaurant entrepreneur collapses

Directors of FDX Digital Markets have lost their powers. No assets can be transferred, the Securities and Exchange Commission said, without approval from the provisional liquidator.

“The commission said that it is aware of statements suggesting that clients’ assets were mishandled, mismanaged or transferred to Alameda Research, a trading firm also run by Mr. Bankman-Fried,” the Journal reported. Any such actions would be “contrary to normal governance, without client consent, and potentially unlawful,” the commission stated.

Salame, 29, has not responded to multiple messages from The Eagle seeking comment about the status of his Lenox holdings. Lenox Chamber of Commerce Executive Director Jennifer Nacht has voiced concern about the implications, stating that the Olde Heritage Tavern and Firefly Gastropub — two of Salame’s highest-profile acquisitions — are continuing to operate as normal. “Everything else is on hold until further notice,” Nacht said.

Ryan Salame stands outside Firefly Gastropub, one of the restaurants he has purchased in Lenox. 

In a phone conversation with The Eagle on Friday, Homer, who previously oversaw New York state’s licensing and supervision of cryptocurrency companies, shared his thoughts on the fragile state of the industry following the demise of FTX with 100,000 creditors out in the cold. Excerpts follow:

Q: Is the FTX bankruptcy and the fall of its founder Sam Bankman-Fried, who had been one of the most respected leaders of the crypto industry, a black mark on digital currency?

A: It’s the second “massive” extinction — the first was the collapse Mt. Gox based in Tokyo, then the world’s largest bitcoin exchange. [It abruptly ceased operations in 2014 and filed for bankruptcy amid charges that massive amounts of bitcoins were missing and had been stolen.] This is more than a black mark, it’s catastrophic. A few other companies failed earlier this year — Three Arrows Capital was reported in the red at $3.5 billion. FTX is in the red to the tune of $9 billion. At a minimum, it sets the industry back significantly, for some amount of time, particularly with regulators in Washington, D.C.

Q: What’s the biggest challenge facing the crypto industry?

A: The biggest barrier the industry has to overcome involves trust, confidence, if they can overcome that, if this sweeps out all the bad actors. But it’s really hard to know, Sam seemed very trustworthy. It’s a lot to overcome. The question is, is this like a “nuclear winter,” that lasts for a long time?

Q: Is there a future for the crypto exchanges, for bitcoin?

A: I think it does recover, but it may look significantly different, even totally different. I don’t think the industry goes away because if you look at the history of money over 5,000 years, it increasingly trended in the direction of efficiency, speed, convertibility, transportability. In the digital era, money has become almost like oxygen, an invisible force behind the scenes at all times. The system we have today is a digitization of a pre-digital world. We’ve figured out how to digitize things. Maybe something else will emerge that’s better than decentralization, tokenization, but I don’t think we’ve seen it if there is something better.

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