The Sorry Saga of Bankman-Fried

Crypto Is Not About to Replace Central Banking

Which one would you trust?

The adoring star-gazing of Sam Bankman-Fried, yesterday’s boy crypto billionaire, today’s petitioner for Chapter 11 protection in federal court, casts shame on media scribes and gullible investors alike.

For me, the sudden implosion of FTX, Bankman-Fried’s crypto exchange, invoked a bizarre trip through memory lane. Fortune magazine actually likened him to the subject of my first book, Warren Buffett.

It would be hard to think of a worse comparison — or one that more neatly encapsulated the mass delusion with crypto.

In fact, it takes you back to Benjamin Graham (Buffett’s teacher). The father of value investing’s essential contribution was to distinguish between investment and speculation. The bedrock of investing is that purchases are based on intrinsic value.

As we have said before: crypto has none. It is pure speculation. It has a price—what what one man will pay another—but not inherent value. It is art that you can’t see.

Financial writers who fail to point out that crypto is devoid of inherent economic value, or purpose, do readers a grave disservice.

Just as bizarre, for me, were various comparisons drawn between Bankman-Fried and J. Pierpont Morgan. Morgan was America’s putative central banker before the creation, by Paul Warburg and others, of the Federal Reserve in 1913 (subject of my book, America’s Bank). Such comparisons made a fleeting case for Bankman-Fried as a modern Pierpont. They also make a case for crypto as a medium of exchange superior to the Federal Reserve note, i.e. the dollar. Crypto ideologues commonly hold forth on their disdain for central banks. But they, like the rest of us, still use dollars, euros, yen, etc., virtually every time they go to the store. Don’t expect that to change.

You can read my exposition of why the Federal Reserve, imperfect as it is, beats both the largesse of a J.P. Morgan and a currency based on crypto, published in Saturday’s New York Times, here.

And more to come on Bankman-Fried next week.