FTX: The Downfall of Cryptocurrency (2022)

FTX: The Downfall of Cryptocurrency (2022)

Abstract

Cryptocurrencies have a history of some shady backgrounds behind them. Some companies have ties with questionable leadership or ethical dilemmas. FTX is a perfect example of a cryptocurrency that is currently crashing because of ethical issues that lead to investors as well as competitors questioning the legitimacy of the company. There are many different examples of ethical theories that can apply to the company FTX such as Individualism, Kantianism, Virtue Theory and others. When a person can apply these things to a company it is not a good thing because it means the company is going through some kind of questionable decision making. This can affect the company in a major way because it leads to people not trusting them with investors' money. These theories can demonstrate to investors whether or not they should continue to put their money in this company. If they decide to pull out, it causes a major crash in the market.

Ethics Case Controversy

FTX is a cryptocurrency that is currently struggling mightily in the market. The stock has gone down 94% in the last month and is continuing to fall. All of this has begun to happen because of news breaking about the company misreporting funds. Founder Sam Bankman-Fried created FTX in 2019 and it quickly outgrew what was expected of the cryptocurrency. The company grew so large it was able to purchase time for a super bowl ad, had their name on a college football field and a NBA court, and the founder was featured in The New Yorker and Vogue. As quickly as the company rose, they fell even faster. On November 8th, 2022 FTX was falling so far in the market another rival company announced they planned to buy it out. Binance, one of the largest crypto exchanges in the world, had announced they planned to buy their competitor out and take over. This deal was set to go through until a crypto publication called CoinDesk came out with a report explaining how the sister company of FTX was looking at some trouble. Alameda Research is a hedge fund that Bankman-Fried founded before FTX. This hedge fund had a large portion of their assets in a cryptocurrency called FTT which was created by FTX for traders to use when going on their platform. When CoinDesk came out with this report it was feared that since FTX was dropping in price it would lead to a major problem for Almeda Research as well. After the details about this came out Binance decided they did not want to purchase FTX anymore which led to some public issues between Binance owner Mr. Zhao and FTX owner Mr. Bankman-Fried. While all of this was going on investors began to pull out of FTX as much as possible. After Bianance announced they were no longer purchasing FTX, the stock dropped about 63% in just 24 hours. As of today, November 21, 2022, the stock has dropped about 94% since the original report came out. People began to worry this was going to be one of the next big Crypto collapses, so investors withdrew over $1.2 billion from FTX holdings. Binance also later announced they were going to sell all of their holdings in FTT because of these recent issues. Mr. Bankman-Fried has been trying to keep the public calm during this entire situation by saying “ A competitor is coming after us with false rumors, FTX is fine. Assets are fine.” (New York Times) Binance is also not a stranger to scrutiny because they have had issues in the past with the Securities and Exchange Commission, as well having many 

details about their business hidden for years. Through all of this trouble FTX has been able to stay afloat because it is backed by some major investors including Sequoia Capital and SoftBank. The company was able to raise nearly $2 billion in funding from these investors. They came out with a statement talking about how they were shocked by the way Binance wanted to take over the company and did not see it coming. In an email to investors, Bankman-Fried said stockholders were his second priority and the first was protecting the industry and customers. He later apologized in this email and said he understands he needs to do better. In a memo to the FTX staff he said more information will be coming in the future and he was to continue to grow the company together.

Stakeholders

There are a couple different stakeholders that are involved in this case. The first example of a stakeholder would be the people who are working in the company. These people have a major stake in the success of FTX because they are counting on that company for their jobs so they can survive. If the company goes under, their lives are going to change drastically because they will be looking for a new place to work. Another example of a stakeholder in this case is all of the people that are invested in FTX. These people have money on the line and the more the stock goes down, the more money they are going to lose. They want to see the company succeed as much as possible so they can make as much money as they can. One last example of stakeholders in this case would be other companies involved in the cryptocurrency market. They are stakeholders because when people see FTX crashing it begins to affect the rest of the market as well. People worry the rest of the market is going to crash like FTX is so they decide to pull money out of other cryptocurrencies as well.

Individualism

Individualism can clearly be demonstrated in many companies around the world on a daily basis. The idea behind individualism is each business has the end goal of making a profit. Businesses will do anything they can to achieve that goal because they want to maximize the profit for all shareholders in the company. That would be their only obligation to everybody. The only catch with this is it has to be within the law. Some businesses take that very seriously but others appear to have problems staying within the law. FTX is walking a fine line when it comes to this because their obvious goal as a company is to maximize all the profits they can, but they have done some things that can be debated whether or not it was ethical. As a company they have not done anything illegal yet, but some of the decision making from their owner has been very questionable as of late. Having his hedge fund own a large amount of FTT is not illegal but is not considered the most ethically correct decision he could have made. His goal of this was to maximize all of the profits he could for the business but he is doing it in a questionable manner. The problem with Friedman’s theory of Individualism in this case is it does not take into account the identity of each company individually. FTX is a company that wants to do all they can to achieve their goals of growing as a company. Some of their core values may get put in the rear view mirror along the way because they know doing the right thing will not always bring them the most success. They tried to do what they needed to so they could get a strong business that continues to grow but their ethical decisions in this area have begun to lead to the downfall of their company. It has led investors to pull money out of the company and has caused a major drop of their stock price. If they truly followed the ideas of individualism they could have been more successful in the long term rather than having short term success but then falling is a massive way.

Utilitarianism

Utilitarianism is another ethical theory that somebody could say had a major impact on FTX as a company. This definition of utilitarianism is “Utilitarianism tells us that we can determine the ethical significance of any action by looking to the consequences of that act” (DesJardins 30) The goal of this ethical theory is to maximize the overall good as much as possible in any decision a company makes. A company is trying to produce the greatest amount of good for the largest number of people when they are considering this theory. This is something FTX needs to consider more when making decisions as a company. The choices they make might provide success for themselves in the short term, but do not provide much good for everybody else that is associated with them. The choices made by Mr. Bankman-Fried caused many investors to pull money out of the company because they do not believe he is doing a good thing for everyone. They believe he is just trying to set himself up rather than doing good for a large number of people. If he paid more attention to the meaning of Utilitarianism he could have been more successful for a much larger number of people. If his decisions were based more on the success of everybody the company could have continued to grow for many more years in the future rather than falling like it is now. The issue with Utilitarianism is it is hard to actually find a way to measure this good. People say the good should lead to happiness for all parties but how can one measure that? This could be a reason why FTX did not take this theory more into consideration because they did not know how to measure the results. Investors being happy with something does not always relate to how they manage their money so the company would not be able to measure their success with Utilitarianism based on that idea.

Kantianism

Kantianism is another major theory in business ethics that many businesses consider in today's world. Kantianism has a couple major rules that play key factors in decision making. The first rule is to act rationally and do not consider yourself exempt from any rules. The second is to allow other people to help you make any decisions that need to be made. The third is to respect people and their own individual needs. The final rule is to be motivated to achieve your goals for the company. FTX appears to have taken some of these rules into consideration but not all of them when going through business decisions. For example, FTX as a company was clearly motivated to succeed and they would do whatever is necessary to get the best result for their company. However they also did not consider some of the other rules such as acting rationally and letting others help make any major decisions. It is safe to say the decision of Mr. Bankman-Fried’s hedge fund owning a large majority of FTT was not a rational decision. If he took the time to sit down and look at how that would not only affect FTX, but all of the people involved with the company he would not have decided to put that large of an amount of FTT into his hedge fund. He also could have had other people come in to consult on this decision rather than making it all himself. If he had input from others telling him how when that information is released to the public it could have a large backlash on the company, there is a chance he would have decided against the idea and made a different decision. The final rule about one individual being exempt from other rules is something that could be worked on more for the founder of the company. He made some decisions that focused mainly on himself and made it look like he did not have to take any input from others or consider others in his choices. This is a clear example of him thinking he is too good to follow all of the rules that relate to Kantianism.

Virtue Theory

Virtue theory is another theory that talks about the good and how choices and actions can affect that. The idea behind this theory is it is not enough to just understand what the correct actions or virtues are, but they need to be regularly practiced. A company needs to make the decision about what the right thing to do in any situation is and they need to stick by the choice they make in the future. One way this can happen is having a person model themself after others who have had success in this area before them. For example, if Mr. Bankman-Fried decided to model some ideas for his company from another company that is known to be successful in areas such as being environmentally friendly, giving back to the community, or continuing to grow the field of work they are in by creating more jobs for people. Making good choices like these that affect people in a positive way would be something that FTX could greatly benefit from as a company. FTX has been hit with a lot of bad PR lately which has led to them losing lots of money from investors. This is all happening because of some poor decision making by the founder of the company. If FTX started getting in the news for something good like the examples listed prior, people's confidence in the company could grow back to where it was originally. FTX could begin the practice of making good decisions that lead to a large amount of good for many people and the company could begin to change the narrative currently going on in the media. These practices could also begin to turn around the company's history of poor decision making. If one begins to practice good virtues on a regular basis, it begins to become a habit. These habits always lead to a larger amount of good for a larger number of people rather than focusing on the success of just the company themselves.

Justificated Ethics Evaluation

FTX has a history of making decisions that are considered questionable. The founder of the company, Mr. Bankman-Fried, has made some choices that appear to be what is best for his own gain and not what is better for everybody else that is involved with the company. His obvious goal is to make the largest possible profit for the company because it leads to him getting the biggest personal gain. But some of the decisions he has made has led to the downfall of the company as well as losing money for many investors. The biggest example of this is his hedge fund owning such a large majority of FTT. This led to short term success for FTX because they were able to move a large portion leading to a large profit, but when the news came out to the public it was a major red flag for investors and opposing companies. This led to Binance deciding against buying out FTX while their stock was plummeting because investors were pulling out millions of dollars everyday. The decision that was made was not an ethical choice because it did not provide a large amount of good for a large number of people. It only provided short term success for the company and himself. His argument with the owner of Binance in the media also did not help his company at all because it made them look bad on a national spotlight for everybody to see. Overall this company has made choices in their past that would not be considered ethical and it had clearly led to the downfall of their stock. They continue to fall everyday because of the poor choices that were made by their founder.     

Conclusion

FTX is a company that had so much potential to grow and become a stable in the Cryptocurrency world. Sadly all of that potential appears to be going in the wrong direction because of poor decisions made by the founder of the company. Not only did Mr. Bankman-Fried lose money for tons of people invested in his company, he lost money for all of the workers and himself as well. If he considered more ethical theories when he was making all of the decisions that would drastically affect the company, he could have been more successful in the business world.