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Right around that time, speculation online started percolating about FTX, the second-largest crypto exchange in the world, being insolvent. “Those were the days it looked like things were getting out of hand,” Kassam says, but he figured he was probably fine given that most of his holdings weren’t in FTT, FTX’s crypto token, or in other tokens; he had sold most of his crypto earlier in the year and was instead holding dollars on the platform.
While Kassam was on vacation, the FTX revelations escalated, fast: crypto trade publication Coindesk along with crypto researcher James Block found that a significant chunk of the holdings belonging to Alameda Research, a crypto trading firm run by FTX head Sam Bankman-Fried (better known as SBF), were in FTT. The revelation that one firm’s value relied primarily on the printed-from-thin-air financial product devised by its sister company set off alarms in the world of finance. Days later, investors were further spooked: On November 6, Changpeng Zhao, the CEO of Binance, the world’s largest crypto exchange, announced that his company would be selling off all of its holdings in FTT, due to “revelations” about the financial health of parent company FTX. Within a day, the price of FTT plummeted from just over $22 all the way down to under $4, as FTX users started pulling their money from the trading platform en masse. When Kassam returned from vacation and caught up, FTX had stopped letting users take their money out of the platform—which mean that his cash was as good as gone. “By the time I came back, all withdrawals were closed,” he says.
Over the next week, more of FTX’s business practices began to unravel in the press. The Wall Street Journal found that SBF’s Alameda Research may have used FTX customer funds to trade without those customers’ knowledge, potentially committing fraud. FTX filed for Chapter 11 bankruptcy, with SBF stepping down as CEO and handing over the reins to the lawyer who once steered Enron through its own scandal-induced bankruptcy. Soon, Kassam realized that withdrawals probably weren’t going to reopen: His holdings on FTX, around 50 percent of his net worth, were gone.
Since early 2021, Kassam had amassed what he describes as a “decent six-figure” sum of money by making early bets on cryptocurrencies like Solana, which went from being several dollars a token in early 2021 to over $200 dollars a token at the end of that year, and by flipping NFTs. “A very large portion of my net worth is gone because FTX committed fraud and gambled customer funds,” Kassam told me when I first reached out to him via Twitter direct message last week.
Kassam had planned on using his earnings to buy a home in Vancouver, where he currently lives. Though he still has income from his marketing business and still has six-figure savings, he’s now going to have to put his housing plans on hold. Having lost so much on FTX, there is no way he’ll be able to buy a home now in his hometown, which has one of the most expensive housing markets in the world.
Kassam is one of just over a million FTX users who’ve lost enormous sums following the alleged malfeasance of Sam Bankman-Fried’s companies. Given the mechanics of the bankruptcy process, there is little hope for these users to recoup most or all of their missing funds. While famous people and big financial institutions have lost the largest amounts, arguably it is the middle-income users of the platform whose losses will have the saddest ripple effects, as people like Kassam have lost much or all of their life savings—and with them, their hopes for a shot at financial stability.
“Not your keys, not your crypto,” is a popular refrain in crypto circles that cautions people against giving up total control of their crypto by storing them on centralized exchanges like FTX. The phrase came to prominence following the hacks of two centralized crypto exchanges, Mt. Gox and Bitfinex, in 2014 and 2016, respectively. Users collectively lost tens of millions in the hacks, and the value of the stolen crypto eventually reached billions of dollars as Bitcoin and other tokens appreciated. Kassam said that he previously kept some of his crypto in a decentralized wallet—meaning that only he had access to it. But it was eventually hacked, leading him to lose several thousand dollars. After that, he thought that storing them with a trusted, centralized company like FTX would be safer.
“I’m obviously bummed. But I’m in a good position relative to the situation, compared to a lot of other people,” Kassam told me, acknowledging that a lot of other FTX users probably have it far worse. “This has not changed my ability to pay my bills and live my day-to-day life.”
I reached out to Kassam after FTX imploded, destroying billions of dollars of value across its user base that likely won’t ever be recovered for customers. Most of the coverage that ensued focused on the intrigue and schadenfreude-inducing losses of high-profile investors like football player Tom Brady and the financial professional who did an extremely brief stint as Trump’s Communications Director Anthony Scaramucci, or institutions like the famed venture capital firm Sequoia Capital. But FTX had one million accounts, which meant that most of its users were not wealthy. Kassam was among many average FTX users who took to Twitter to voice their sorrow and indignation. I reached out to almost a dozen of them, and spoke with seven. What I came across was bleak.
The bulk of FTX users I spoke with asked to remain anonymous, citing embarrassment and dejection over their lost funds. Several had even worse experiences than Kassam. One lost his life savings, hadn’t told his wife yet, and was unsure how he was going to meet his mortgage payments. Another, like Kassam, lost the money they planned to use to buy a house. Some were so dejected that they declined to talk. “I’m not looking at talking about it. honestly just want to move on from it,” one person wrote. At least three of the people I spoke with lost close to the entirety of their life savings, and unlike Kassam, don’t have other well-paying income streams to offset their losses.
“Now I am afraid, thinking, again and again, to jump off a balcony,” one FTX user based in Greece named Christoforos wrote in a message. “The only reason I am not doing it is because I know that wife has no one in life. No family, nothing.”
Christoforos explained that he trusted Bankman-Fried to not “rug”–crypto parlance for scam, shortened from “rug pull”—FTX users because he thought the FTX CEO was too rich to need to steal customer funds. Like Kassam, Christoforos says he was on vacation while the news about FTX was swirling, and thought he had time to withdraw his funds. “Once I was home, I initiated a transfer. It never moved,” he wrote. “I lost about 70-80% of my total net worth.” (Christoforos declined to provide documentation of his FTX investment but claims his losses were upwards of $200,000.) For Christoforos, crypto represented a way out of limited opportunity. His Twitter banner image, which he told me was an allegory for crypto, was a picture of a Pepe the frog (a once right-wing meme, that has since been reclaimed by non-far right subcultures across the internet) walking away from an industrial wasteland on fire, towards an idyllic field filled with flowers, rainbows, and clear skies.
Christoforos said that he has other income streams, but no way of getting anywhere close to what he had on FTX, given the limited opportunities for economic advancement available in Greece. “I feel as though I can’t recover from it,” he told me.
Another user in Europe declined to share his name and specific location on the record because he hadn’t shared with his “other half” and family that he had lost almost all of his money, about $135,000, in FTX. “I don’t have the strength to tell them,” he told me. “I’m fairly sure it would ruin our relationship permanently.”
“I’m very devastated because I have a mortgage to pay which will be very difficult in the next months,” he wrote, adding that he and his girlfriend are expecting a child as well. “I was fired from my main job a few months ago. Since then I’ve been looking and I’ve been hired on and off from a construction company for small gigs but it’s not enough.”
A separate victim of FTX in Germany said that he had also lost almost all of his savings—”low to mid six figures” by his telling—in the exchange’s collapse. “I thought FTX was safe,” he told me. “My dream was buying a home but I didn’t have the money for it yet. Now I have even less money.” The user, who asked to remain anonymous, said that their income from freelance graphic design work for crypto companies is dwindling, making it even harder to recoup the losses over time.
All of the FTX users I spoke with explained that they hadn’t just lost money, but a shot at financial security. None told me that they wanted to get fabulously rich, though I’m sure they all wouldn’t have minded. But almost all of them said they just wanted to be able to afford to buy a home or to be able to keep paying the mortgage on their existing one—financial hurdles that are growing ever more challenging for many households thanks to record inflation. “I believe inflation is here to stay. Rents will keep going up,” Kassam said. “I want something that’s my own, that’s cost controlled. That I can pay off and give to my future kids.”
Crypto gains have helped those lucky enough to have gotten in and out of markets at the right time to be able to afford homes. One survey by the real-estate website Redfin found that “One in nine first-time homebuyers (11.6%) surveyed in the fourth quarter said selling cryptocurrency helped them save for a down payment, showing an increase from previous quarters.” According to their numbers, 8.8 percent of buyers in the third quarter of 2020 claimed that they had used crypto gains to buy their houses, and 4.6 percent of buyers in the third quarter of 2019 said the same.
It is not surprising that so many investors have turned to crypto in an effort to secure the increasingly elusive goal of homeownership. Being able to own a home is key to long-term financial security, and yet today it is harder than it ever has been, thanks to the hefty cash downpayment usually required to purchase property.
“It is increasingly difficult for all but the highest income earners to save up a deposit through wages alone,” write University of Sydney professors Lisa Adkins, Melinda Cooper, and Martijn Koning in their book, The Asset Economy. “The need for a lump-sum payment to break into the market means that intergenerational transfers of wealth come to play a central role.” In other words: even many high-wage earners now need windfall inheritances or familial gifts to be able to afford homes. For the bulk of people who don’t have family money, then, the only way forward is to get a windfall somewhere else. While crypto is an extremely risky investment, it’s maybe the only place to score that windfall without abysmal lottery-like odds.
Metrics suggest that many retail investors understand this. Data on who uses FTX to trade crypto aren’t easy to find, but numbers from the American crypto exchange Coinbase provide some potential insight by proxy. According to an analysis by the fintech startup, Stilt, 53 percent of Coinbase users have a FICO credit score of 650 or lower, ranging from fair to very poor. While credit scores only moderately correlate with income, some analysis has suggested that lower credit scores tend to signal poorer financial situations like poverty and nearly insurmountable levels of debt. If FTX’s retail users look anything like Coinbase’s, then it is quite possible that a lot of people in tough financial situations lost money this November thanks to FTX playing fast and loose with their deposits.
Still, most of the FTX investors I spoke to said they weren’t going to stop investing in crypto despite their massive losses. The economic inequality that drove many of them to seek out crypto in the first place isn’t going anywhere, and the lack of other routes toward financial stability seems here to stay.
“I think the risk, reward of staying in crypto is worth it,” Kassam said. “You can turn a picture of a cartoon monkey into a house for your family to live in. Like holy shit, it’s hard to not want to participate.”