What the FTX collapse means for the future of crypto: Real Vision's Ash Bennington

Ash Bennington, senior host and crypto editor at Real Vision joins Yahoo Finance's Jared Blikre to break down the fallout in crypto from the downfall of Sam Bankman-Fried's FTX.

Video Transcript

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JARED BILKRE: Welcome to "Yahoo! Finance Uncut." I'm your host, Jared Blikre. And this is a series where we look beyond the headlines of the day to take a deep dive into the markets and business finance, exploring the big-picture themes and underlying currents driving all the market action. And we take a 30,000-foot view in this taped series. And today, Ash Bennington, senior host and crypto editor at Real Vision, he is joining us. Thank you for being here, Ash.

As I said, we're taping this. It's Thanksgiving week. But there is no shortage of headlines, and we're continuing to track the fallout in Bitcoin from FTX, Bitcoin touching 16,000 today. Reports that some of the hacked Ether, Ethereum, and Bitcoin from FTX accounts is making its way into the trading universe here. We can see the transactions, but what are they doing? All right, Ash, you followed this very closely. Why don't you bring us up to speed here?

ASH BENNINGTON: Boy, Jared, the hardest part about this story is knowing where to begin. Obviously, it's a massive story. We were talking about this online a little bit. There are just tentacles that stretch out in every direction. So where we begin is probably at the beginning. In September-- I believe it was September 14-- three reporters at Bloomberg reported on a story about Alameda and FTX. Alameda-- for those who may not know, Alameda Research is a sister company to FTX, both of which have very large equity stakes owned or controlled by Sam Bankman-Fried.

FTX and Alameda, as the reporting turns out, had a great deal of intertwined balance sheets. And that story got people a little bit anxious. It was a story that got a little bit of buzz but not too much until about a month later, when CoinDesk broke a story that showed precisely the nature of the balance sheets being intertwined between FTX and Alameda Research. So there are some-- I believe the reporting now is $16 billion worth of customer assets on FTX.

The latest report-- and this seems to show that somewhere between 8 and 10 billion of those dollars were lent from FTX over to Alameda Research. There's a lot to jump in and talk about here, but let me just say this. For people who are listening to this, and they hear FTX referred to as an exchange-- an exchange in the crypto space, for people who follow traditional finance, represents something a little bit different than it does in the TradFi space, as people in crypto call the capital markets.

The main difference here is FTX wasn't just an exchange. It was more like a combination of an exchange, a brokerage house, and then, with its relationship with Alameda, more of a prop shop, a quant fund, or a hedge fund. So, basically, you have all of these things compressed into one in this space-- and as you can see from what later happened, clearly a lot of risk.

Customer funds, obviously, should always be segregated at an exchange. And when customer funds-- more than half of them-- are being lent out effectively to a hedge fund that's making speculative bets, trading bets, and, additionally, venture capital investments that are highly illiquid, there's some real potential challenges, as we saw with what unfolded next.

JARED BILKRE: Ash, really interesting that you began your discussion with the structure and how unusual this would be in the traditional finance realm. We've had exchanges more-- well, let's just give the history of exchanges here. Over hundreds of years, most exchanges adopted a risk-sharing mechanism among the various clearing members. So you would have the exchange, and then you would have the brokers who are members of that exchange.

And they would be selling securities that were made by mostly unaffiliated parties. But here, we have all three of those in the same entity. And it just seems like-- yeah, it's easy to say with 20/20 hindsight, ripe for fraud. But in fact, that is what we've seen. Just wondering--

ASH BENNINGTON: Yeah. And by the way, I'd say throw an investment bank to that mix as well because you had them creating their own tokens as well. In fact, one of the really shocking things that came out about this story was from original news broken by Bloomberg that the largest balance sheet asset on FTX's balance sheet was $2.2 billion-- with a B-- in the serum token, which was a token that Sam Bankman-Fried and some others created in the DeFi space-- that you had all of these very weird relationships. You said it was highly unusual. I might go a step further and say it would be completely impossible. Regulators would not allow this in the capital market space. They certainly wouldn't allow it on shore.

JARED BILKRE: Well, there is the R word right there-- Regulators. You can say a lot of things about it. Gensler has been-- he's had a very-- I don't want to say anti crypto, but he hasn't done much to advance crypto regulation thus far. A lot of this space has been pushed offshore.

And what do you say to the arguments that, by not approving a spot Bitcoin ETF earlier-- in fact, we still don't have one-- we have the futures based ETF-- that Gensler simply drove a lot of the American investing population into the arms of these international options, where you didn't have the protections necessarily? Now, all of that to say that we're not necessarily going to prevent against fraud. But you do have an administration-- I'm going to put the SEC as part of that-- that has not been the friendliest towards crypto.

ASH BENNINGTON: Well, you know, in my view, that was probably one of the problems. We also have multiple regulators in this country, unlike, for example, the UK, where they have a single unified regulator. You have CFTC and SEC trying to sort out who belongs in what domain here in terms of the regulated entities. I think it was certainly one of the problems. Whether or not it was the proximate cause, I don't feel that that's probably fair to put on SEC.

I think they could have been more proactive. One of the challenges that we see in this space from a regulatory perspective is that we are in this period right now, Jared, of regulation by enforcement. There's a line in the sand somewhere, and you only get the tap on the shoulder after you've stepped over it.

You know, there are a lot of good actors in this space who really care about this technology, who believe in it, who are here for the long haul, who are you, to your point, begging for regulation and begging for a framework that they can say, hey, we want to stay on the right side of the line. Tell me where that line is. As of right now, it's very murky, Jar.

JARED BILKRE: Well, and that also leads to the situation at Coinbase. They tried to offer not yield farming but interest on securities in their accounts. And that was shot down handily by the SEC, thrown right back at them with a subpoena. And it's been very difficult for crypto companies that want to operate in the US to get any guidance. To your point there, it reminds me of more than 20 years ago-- this is in the late 1990s-- when Forex-- foreign exchange currencies-- what we talk about the Euro versus the US dollar-- was not centrally regulated.

CFTC, the Commodities Futures Training Commission, would eventually gain sole regulatory purview over Forex. But that was enforcement-- it was regulation by enforcement at the time, when we didn't have the precedents. And the SEC and the CFTC, I believe, went after a number of smaller players. CFTC eventually got the win in Congress to regulate. But that took years. It took years to fall out.

And meanwhile, the CFTC was operating-- was doing sting operations with broker dealers. People lost a lot of money, and it strikes me as quite similar to what's going on right now. I'm just wondering what your thoughts are.

ASH BENNINGTON: I think it's a very good metaphor and quite apt. Look, there are a lot of challenges in this space, and we can talk about them here. The regulatory component is only one of them. But I have to say, Jared, to your point, I think you're spot on. It's a huge piece of it. When you don't have rules of the road for good actors who really want to do the right thing, it's very difficult to create a framework that everyone understands and agrees upon.

And what you wind up having happen is you have folks go offshore and operate in these very unregulated environments. And then you get things that look like what we have right now with FTX, which is-- let's be honest. This bankruptcy, this collapse, is nothing short of an absolute debacle. And it's completely a disaster for the space for a whole number of reasons that we can get into.

JARED BILKRE: Let's get into some of those reasons. And I also want to look a bit towards the future. How does crypto crawl out of this current mess, Ash?

ASH BENNINGTON: Well, let's start with how crypto got into this current mess. We talked a little bit about the regulatory component. That's certainly an aspect of it. But, look, the main thing I would say is the ideals of crypto-- and I know I'm going to sound really negative here. But I'm incredibly bullish about this technology. I believe that these decentralized assets-- decentralized trust is really the future of finance, of commerce, and of a whole lot of other things.

Let me just give a little bit of background on what I think crypto actually is because this is a question that people often have a difficult time defining because you have Bitcoin, you have Ethereum, you have some 10,000 other coins. What is this stuff? What do they all have in common? You have DeFi. You have Web3. You have NFTs. I think from the outside, they all look very different. And it's very difficult to understand what it is.

For me, Jared-- you mentioned the 1990s-- this is really an extension of a revolution that started in the '90s. Well, I suppose you could-- if you really wanted to go back, you could say this started in the 1960s with DARPANET, the beginnings of the internet. The commercial internet, when the acceptable-use laws came around and allowed for commercial activity, obviously boomed in the 1990s, when I was one of the young kids on Wall Street. And I was fortunate to be there.

But phase one of the internet was very much a publishing phenomenon. It was read, not write. You could get information. You could distribute information. Companies had the ability to distribute information at costs and at speed on an ease of use that had never been before.

And then we get this Web2 revolution, which is the Twitters of the world, the Facebooks of the world, the Googles of the world, the YouTubes of the world, where you have interactivity, where it's read and write. You can post your own videos. You can write comments on other people's videos. You can share videos on different platforms. This created, obviously, an explosion of interest, an explosion of opportunity for people who wanted to publish content and who wanted to be interactive.

And so what's interesting now is we are at the very beginning-- and I mean very beginning-- of the Web3 revolution. And what Web3 is, to me, is, really, it's about read, write. But additionally, it's also about the ability to monetize and the ability to own. If you create a video, Jared-- a personal video that goes viral on YouTube or viral on Twitter, you get bragging rights. And the shareholders of Facebook, the shareholders of Google get to profit from it.

And that is the challenge, I think, that Web3 ultimately seeks to solve. It's the capacity to have ownership and monetization in addition to just the ability to distribute content. And in many ways, the fundamental basis of this is this sort of revolution that comes out of the Satoshi Nakamoto white paper around Bitcoin, which really allows us to do things that we never were able to do before in a decentralized way.

And that word really is key. You know, we can do things in the Web3 world without trusted third parties. And that's really what the revolution is. It's about trust. It's about the ability to transfer value, identity, and access control without a trusted third party agent. And what's happened here, to get back to your original question-- what went wrong and how do we fix it?

Well, what went wrong is that we effectively rebuilt the old financial system with all of its flaws in the Web3 space, in the crypto space. And we built it offshore in an unregulated way that was highly centralized and reliant on the trust of individuals rather than the trust generated by math and physics, which is what crypto is all about-- the encryption that prevents people from doing bad things.

And you had all of the flaws that we could talk about. You and I have been doing this for a long time, and we've seen what can go wrong-- in 2007 and 2008, the spectacular challenges we had in the financial system. But you can go back farther than that. Francis Coppola, a very well-known economist, wrote a piece that was prescient in-- in November 1, she published it on CoinDesk, basically comparing the state of crypto now to the state of traditional finance in 1907. This is the JPMorgan bankers panic era.

All of the usual shenanigans were there in the sense of what we typically see happening in traditional financial failures-- excess leverage, commingling of customer funds, off-the-books loans, a total absence of financial controls. All of these things are conversations that you and I could have been having over a coffee in 1999.

JARED BILKRE: Well, let's go back to 1907. The rich man's panic, as I think JPMorgan himself, the man, described the events. And from that we got the creature of Jekyll Island, which is the Fed-- the Federal Reserve-- a backstop. And now that-- FTX was supposedly the backstop. We know that's not the case now. Do we need some kind of centralized lender of last resort, authority of last resort? Or can the existing regulatory structure really accommodate your vision and a lot of people's visions for crypto keeping somewhat of a decentralized aspect to it?

ASH BENNINGTON: I think a lender of last resort in crypto would be the worst possible option for a whole variety of reasons. So the one thing about this crisis, as terrible as it is, in the crypto space and the damage that's done in the crypto space in terms of an absence of interest or declining interest from traditional corporate entities to the potential regulatory headwinds that we see coming over the horizon-- this crisis is or has been to date-- we can't really talk about the future-- but to date, it's been very well contained to the crypto digital asset world.

There haven't been spillover effects, as we saw in 2007 and 2008. One of the stock lessons from that was the failure of Lehman Brothers. Many believe that it should have never been allowed to happen. And if it hadn't, maybe that crisis would have been contained. I think that the idea of introducing moral hazard into the crypto space would make it even more like the challenges that we've seen in the traditional finance space. And it's probably reasonable to ask, well, OK, if you don't believe in a lender of last resort, what do you think should happen?

I think the challenge right now, Jared, is that-- we've got ahead of ourselves with this technology. And I'm not really sure that it's as mature as many of the advocates and acolytes in the space want to believe it is. There are some huge flaws in this not just on the regulatory side, but also on the actual functionality side with the tech. And I'll explain a couple of those.

JARED BILKRE: Please go ahead. Yes.

ASH BENNINGTON: So one challenge that we have right now is the user interface, user experience. This is not an easy technology to use. I say this all the time--

JARED BILKRE: It's like Mastadon almost.

ASH BENNINGTON: It's a little like Mastodon. I like Mastodon. I think it's a pretty cool idea. But look, it's-- my mother does not have a MetaMask wallet. And lots of folks are not comfortable custodying their own assets. People have said-- like, the really sort of D-Gen folks who are into crypto have said, well, you know, what did you expect? You should have had your crypto offline in cold storage. You should have had hardware wallets. You should have had a whole massive series of redundant storage facilities for this stuff and backup plans.

The reality is many people don't want to do that. And right now, the technology, if you're not a computer science PhD, is not easy for most people to use. That's one massive problem in the space. The second is-- and this is kind of a-- don't know if this is a flaw with the system or a flaw in our thinking, that we thought that this was there when it wasn't-- was that one of the things that we can do in crypto that I think is really about the spirit of the space that I talk about-- the decentralization, the trust in math and physics rather than individuals-- is something called proof of reserves and also proof of assets and proof of liabilities.

We took Sam Bankman-Fried-- we collectively all took Sam Bankman-Fried at his word. And to get back to the 1907 bankers panic metaphor, there were a few minutes there where it looked like Sam Bankman-Fried was the new John Pierpont Morgan. He tried to intervene to prevent the Voyager bankruptcy. He acquired BlockFi. But the reality is we didn't have a cryptographic way of verifying what his reserves were, what his assets were, and what is liabilities were.

Some of the reporting coming out of Bloomberg suggests that there were $900 million in liquid assets and $9 billion worth of liabilities. Now they had other illiquid assets. But as we said earlier, $2.2 billion of those turned out to be an asset that Sam Bankman-Fried was one of the co-founders in. This was not widely known. I

Think that the future of crypto is going to be-- and perhaps, indeed-- maybe you could say I'm an advocate or a believer-- but, indeed, the future of all finance is going to be cryptographically verified proof of assets, proof of liabilities, and proof of reserves, and also proof of segregation of customer funds, Jared.

JARED BILKRE: So what kind of work are we looking at going forward? Because we have proof of stake, proof of work. If we extend-- which of these features of the balance sheet and of the financial statements, the financial operations-- which of those would fall under which, I guess, categories of proof that already exist? What needs to be invented? And then how does it all fit together?

ASH BENNINGTON: These are great questions. I think it's probably fair to say that, generally speaking, proof of work is seen as-- it's, obviously, the first technology. It's perhaps the most secure technology. Proof of work is what secures Bitcoin. Proof of stake is really what secures just about everything else. I know there are some exceptions here-- Litecoin and some other things.

But it really seems like the future of this space is proof of stake. In terms of the proof of reserves, proof of balance sheet, proof of assets, proof of liabilities, I don't know that you really need a peer-to-peer mechanism for that. You just need it to be cryptographically validated on some of the other chains and to display it. The exact mechanism of how that technology is going to be deployed I think is yet to be seen, as we can see by the fact that that's really not yet done at scale.

But I have great faith in the people who are working in this space-- the developers and the engineers who are working in that space-- to get this sorted out. The truth is this stuff just takes time, Jared. I was at one of the conferences we had--

JARED BILKRE: DeFi is, what, three years old, basically? The terminology itself. This has to be something that a lot of people would consider in its infancy-- expectations running high. And now there's a fallout.

ASH BENNINGTON: Yeah, it may not even yet be infancy. It may be the gestational phases of this. This is incredibly new technology, and it's moved incredibly quickly. I was at a conference a couple of months ago. We had about five of them back to back here in New York. I think it was SALT where I saw Dan Morehead, who's probably the first macro asset manager to get involved in crypto. Pantera Capital is his shop, of course.

And he was talking about how the internet-- people say the internet is 30 years old. That's not true. The internet is 50 years old. It just took us 20 years to even get to the web browser. And I know that the technology is accelerating. Things are moving very fast. But it does give you a kind of a reference for the scale of just how long it takes to get this stuff fully ready for prime time.

JARED BILKRE: I want to ask you about the actor, the big bad actor, one more time-- SBF-- Sam. How far has he set things back? Because you and I were talking before the show. For me, this has a lot of echoes of MF Global and the debacle that ex-New Jersey Governor Jon Corzine, also a Goldman Sachs ex-co-CEO, caused. He nearly tanked the Futures industry.

And at the time, Gary Gensler was head of the Commodities Futures Trading Commission. So he was head of all the derivatives and Futures for the US. And we saw what happened there. It took years for the Futures industry to come back. It took two years for customers to get their segregated funds, funds that were supposed to be guaranteed, life or death rain, hail, sleet or snow-- it took them two years to get that back.

And that was under an existing, very tight regulatory framework. So given what we've seen in crypto, without that framework and with an actor that is punitively-- the actions are worse and are having far-ranging effects here-- what does it take to get back on track?

ASH BENNINGTON: Well, it's a great question. Unfortunately, I think the answer is we just don't know how bad this is going to get yet. And I'm and I'm not trying to be gloom and doom here. We could find ourselves, by the time that this airs, in an extended recovery phase where people go, you know, shake it off, and realize that there's still a lot of value in this space. Or we could have a challenge here with additional contagion risk, liquidity risk.

I'll give you a little bit of context on some of the things that have been happening behind the scenes. So one of the giants in this space is DCG-- Digital Currency Group. This is Barry Silbert shop. Genesis, one of the large companies under that operating entity, froze customer redemptions, customer withdrawals last week. This had immediate spill on effects. It immediately hit the Gemini exchange. This is the Winklevoss twins' exchange, who had to halt redemptions and withdrawals for some period of-- about a day, I think, they were able to get secure additional financing or some other mechanism of backstopping those withdrawals.

So the reality is we are in a period, I would say, of elevated risk in terms of what's going to happen next, whether there are going to be additional shoes to drop. One of the things that you and I were talking about offline was the GBTC closed-end fund. This is now trading at a 45% discount-to-net asset value. It had been traded as high as 100% premium-to-net asset value. There are all these weird things in the space. We just don't know how interconnected things are, and we just don't know who is exposed to what and to what extent their liquidity or indeed even their solvency may be impacted.

I'll give you a little statistic that I think you will find interesting, Jared. So 454 days before Lehman Brothers filed for bankruptcy-- I believe it was September 15, 2008-- 454 days earlier, "The Wall Street Journal" reported that two obscure, frankly, little-known hedge funds in the asset-backed security space over at Bear Stearns had collapsed. It took 454 days for that crisis to reach its apex.

Now, I'm not saying that we're going into a period of a global financial crisis in crypto. But I am just giving a little bit of context and a little bit of a framework for just how long these crises can take to play out. Now, you could probably say the technology is advanced. You have greater degree of transparency. But the bottom line is we just don't know where this is to end, and we just don't know if or when another shoe may drop.

JARED BILKRE: Yeah, it's interesting. There have been a lot of studies over the years that have shown the rise and fall of crypto assets with the leverage that central banks have-- the amount of bonds and also the flow of bonds as they're taking them in or taking them out, off ramping them from their balance sheet. And I'm just wondering, is it going-- when does this crypto winter end?

We've been talking about what it takes to find the regulatory footing and all these great things. But what do you think a bottom looks like in crypto? Because liquidity in the everyday normal bread-and-butter equities and bond markets has been absolutely dismal this year. You could blame QT. You could blame a number of things for that. But certainly not there in the liquidity-- certainly not there in the crypto realm as well.

ASH BENNINGTON: Well, you're spot on in terms of the correlation. You know, I've often joked that if your employer blocked you from viewing the price of Bitcoin on your screen, you could just pull up-- you go to Yahoo! Finance and pull up the NASDAQ 100 and see the directionality and the magnitude of the movement. It was all perfectly correlated there because it was all trading off the-- essentially, as you say-- the central bank liquidity.

Obviously, we're in a tightening phase right now. We're in this very weird moment in macro where we have recessionary headwinds to consecutive quarters of negative GDP. And yet, we're still-- whatever the number is-- 570 basis points above where the Fed wants to be in terms of inflation. They look at PCE. I'm citing CPI here. But the point is there is this significant inflationary environment the Fed needs to rein in. And how that shakes out, we don't know.

But I would say where we are in terms of crypto winter-- right now, we're in the month of November. The question is, metaphorically, in the crypto winter, are we in November, or are we in March? Very difficult to say because we just haven't seen how or when or if another shoe is going to drop. There are these weird non-linear effects, Jared. Sometimes, it's kind of like the butterfly wing theory.

If a company gets very, very close to filing for bankruptcy, for example, and manages to pull it out, you could have a period of these relatively halcyon winter days. But if the right key firm tips over, it could be chaos. So it's really tough. It's not just that it's chaotic. It's that it's chaotic, and it's non-linear. So, you know, folks are making predictions about the short-term price movement right now in the digital asset space. Either they are a lot smarter than I am, or they're speculating.

JARED BILKRE: Yeah, I just want to show a chart we have on the screen here that I'm sharing. It's the price of Bitcoin over the last five years. And I think what's notable is, all the way over here on the left-- I'm pointing to it with the cursor-- that's a 20,000 high, just about, that we saw in late 2017. And by the way, I think you were working at Yahoo! Finance with us at the time. It might have been a little bit before that.

But we have now come down below that prior resistance level. In technical terms, it's just-- it doesn't bode well for the future here. Just wondering what you're seeing here or some of what you have learned, perhaps, in some of the interviews with some of the sophisticated guests that you interview on Real Vision. What are they thinking about the technicals here?

ASH BENNINGTON: Well, again, it's very tough. And I'm a great fan of charts, but it's very tough to cite technicals in these periods of chaotic price movement nonlinearity and waiting to see what or if something tips over. But I don't know if you can flip that to a log-scale chart. But if you flip to a log-scale chart, and you go back to the beginning-- whatever it was, 2013 or so--

JARED BILKRE: Sure.

ASH BENNINGTON: --you can see is this type of price activity has happened before. You see these 90-plus drawdowns from peak. And the most recent high was the all-time high, just under 69,000 in November of 2021. And you can see very clearly by looking at this chart that these kinds of price gyrations, obviously, have a great deal of precedent. They've happened before.

Folks who have been in this space get kind of blase about it, I think. And they say, well, we've been here before. We know what crypto winter is. But they can be really ugly. And I would say that if you look at that-- if you look at it a max drawdown chart of that-- what you see is that we're getting higher lows at every point in the cycle, although that may be cold comfort to people who came in at the top.

JARED BILKRE: Yeah, it looks like in that last bout that we had with the high in 2017, it took three years to emerge from that, to get to new highs. That's not when we got the new bottom, but three years to get to new highs. So it just kind of puts things in perspective.

An area that we may not have explored here-- I want to talk about some of the actors. Sam Bankman-Fried specifically just went off the rails here. He's claiming accounting errors, and things kind of snowballed, and errors have accumulated. He didn't realize the extent of the problems. And these are not the things that you want to hear from a financial firm. How did the lack of structure, the lack of accounting, the lack of knowledge of where all the pieces were fitting in-- it's almost incomprehensible. Do you think that there was any-- is there any chance that there was no bad intent here? That a group of kids just got together? They got fed too much money, and things kind of got spiraled out of control?

ASH BENNINGTON: Yeah, I suppose it is a possibility. I'm not really sure, ultimately, what difference that makes, right, in terms of the ultimate outcome is the same. But we're seeing these stories. I mean, we've got a new CEO in John Ray, who's a very seasoned attorney and CEO. He, obviously, came in and helped to sort out the Enron mess. So this is a guy who's seen a few things in his time.

And what he's reporting-- some of the quotes coming out from the new CEO of FTX are pretty extraordinary, actually, saying things like, we had no-- they-- again, he was new to it, so he has no incentive to shade or color the story one way or the other. He basically says, look, there were no financial controls in place. There's a reporting that says that they essentially didn't have an HR system, that people were borrowing money.

There are reports of Sam Bankman-Fried borrowing money, I think, to the tune of $1 billion-- as some speculative reports, as much as $3 billion. People were buying houses in their own name with company funds, according to some of the reporting. There was reporting that some of those large-scale purchases were being approved with smiley face emojis in chats. I mean, I don't know about you, Jared, but when I forget where I took a cab, and I'm ready to submit my receipts to Real Vision, I get nervous.

These guys were buying houses without any real controls in place, these billion dollars' loans. Now, again, it's very tough to say as-- so we report this stuff and talk about this stuff in real time. There's a little bit of the fog of war here. It's very difficult to say what, if any, individual one of these stories is distorted. But there certainly seems to be a pattern of a lack of grownup supervision and a lack of proper process and procedures and protocols in place.

JARED BILKRE: That leads to my next question and the reason I brought this up. Sure, the result is the same right now. But how much can we trust some of the actors who were going along with SBF and-- I don't want to say pumping, but hyping certain tokens, hyping FTX itself, supporting SBF and his endeavors? Can we trust these people going forward? Because a lot of these people-- I'm looking at them and saying, you should have known.

Given the facts that have come out right now, given the fact that you were doing business with FTX or SBF, as a partner, your due diligence should have produced something that would have revealed some flaws, some hiccups here. And some people did that work. Some people did expose those flaws, like Kevin Duffy over at the CME group, Futures group, and he was ignored.

ASH BENNINGTON: Well, it's very difficult to say who is a bad actor and who is just carried along by this news story. Even Enron, for example, right? Enron is like a watchword for corporate disaster and corporate malfeasance today. But before Enron went bust, I think there were a lot of people who wanted to work at Enron. There were a lot of people who wanted to work at FTX. Sam Bankman-Fried somehow managed to create-- I think it's probably fair to say now-- this illusion around this sort of just almost inviolable nature of the balance sheet of FTX. And that turned out to be a fantasy, a fiction.

And whether or not it was just a total absence of controls, whether there was a malicious intent, or whether it was just know delusional thinking and a complete and total absence of grownups running the show who understood what the proper procedures, protocols, and controls needed to be from a management perspective-- that's going to come out. Obviously, the one good thing about this story, Jared, is we're going to get answers. Every reporter even remotely adjacent to the financial space is in this right now. I'm sure there are tons of books being written. We're going to find out--

JARED BILKRE: And a movie.

ASH BENNINGTON: --the answers to those questions. And a movie-- and a movie, yeah. Michael Lewis, allegedly involved in that?

JARED BILKRE: Yeah, so what are the-- any other characters in this that stand out to you in terms of interest? And I'm not afraid to get into personal intrigue here as well because this is a very human interest story. Regardless of what you think of some of the actors, they went about their lives in very interesting manners. And I think we're going to see that in what comes out here. But who else are you looking at in this saga?

ASH BENNINGTON: Yeah, you know, Caroline Ellison, obviously, is probably the person who's gotten, after Sam Bankman-Fried, the most attention. You know, Caroline Ellison was 28 years old running Alameda Research as the sole CEO and, apparently, based on some of the reporting that we've seen come out, Sam Bankman-Fried's ex-girlfriend. They were all living together-- this is one of the more salacious aspects of the story-- according to reporting that's come out.

Again, we don't really know what here has been really thoroughly backed up. But apparently, there are lots of ex-employees and current employees who have been talked to by reporters who said, listen, they were living in this beautiful penthouse down in the Bahamas. They were all dating each other. Stimulant use was rampant. There's some blog posts talking about things like polyamory.

This story is weird and salacious. And there are those aspects of the story. And look, I'm not sure to what extent it's a distraction from the actual numbers here. But it sure is interesting, as you point out, from a human interest perspective.

JARED BILKRE: I'm wondering about the customers here. Lots of people out. I would imagine any-- more than one, or one itself, is probably too many people to have lost their life savings. I've read anecdotal reports of people who are yield farming to make their mortgage payments. A lot of that blew up. And for some people, yes, hubris got the best of them as well.

But there are ordinary customers here who were damaged. And can you walk people through some expectations as to the difficulties, the length of period of time that they might face in terms of getting any kind of resolution to this? Because you went over the numbers. The assets are not matching the liabilities by a factor of at least 10 to 1.

ASH BENNINGTON: Yeah, and those are the liquid assets not matching the liabilities. I just want to say on some of the sort of more personal details, these are things that have been reported by mainstream newspapers. "The Wall Street Journal" has reported them as speculative, the things that have been reported. But we just don't know yet to what extent those things are true and to what extent they're going to prove material.

But in terms of the actual assets themselves, this is one of the challenges here, Jared, where you're talking about $900 million of assets, liquid assets against $9 billion worth of liabilities. I think the top 50 creditors have $3.2 billion in claims against FTX right now. Part of the challenge is we just don't understand-- and people who aren't in the space, they always ask me the same question-- but where did the money go? OK, I got it, but where did the money go?

And we really don't know the answer to that question. It seems like some of it may-- in fact, perhaps a large percentage of it may-- may have been lost in bad trades, in trading losses over at Alameda that then had were tied to loans that FTX made to Alameda. That's an open question. And some of the assets appear to have been these highly illiquid, as the joke goes, mark-to-fantasy accounting with venture capital investments.

So we really don't know. We just don't know where the workout is going to be. Is it to be $0.10 on the dollar? Is it going to be $0.50 on the dollar? That remains very much an open question. In the case we were talking earlier of MF Global, folks got, I believe, at or close to 100 cents on the dollar back. Took them, I think as you said-- as you told me-- two years.

But look, we're in a kind of weird legal limbo here because Sam Bankman-Fried, Caroline Ellison, are, obviously, US persons. But they were operating this exchange in the Bahamas. They were operating it offshore. I'm not a lawyer. Not legal advice, but there's some pretty material jurisdictional questions about how this is going to-- how the bankruptcy is going to unfold. I know a lot of US-based investors would like it to happen here in the United States. But, again, really murky waters.

JARED BILKRE: Well, you mentioned Lehman Brothers earlier in the failure in 2008 that led to the deepening of the financial crisis. That was resolved in September of this year. So it took 14 years to figure out a relatively-- I'm not going to say it was routine because it was huge in terms of bankruptcy. But that took 14 years to shake out. And that is probably about as old as crypto is. I'm just coming to that realization. So it puts things in perspective there.

Anything else you would like-- anything you've stumbled on in terms of your reporting? And I know Real Vision, the company you work, for is deep in the alternative investment space. You talk to a lot of sophisticated fund managers. Anything that surprises you that you want to bring out that has caught your attention, that would be ripe for some of the more mainstream viewers here?

ASH BENNINGTON: Well, you know, I actually host "Real Vision Crypto Daily Briefing" over at Real Vision. I'm focusing more on the daily news flow on this story right now. I just think that there's just a tremendous amount of uncertainty here. And there are also all these other issues for the space that need to get sorted out. One of the things that came up-- and I was referring to this as the biggest story in crypto until Sam Bankman-Fried preempted me with the collapse of FTX-- which is how we're going to figure out-- obviously, there's been a very big move from proof of work to proof of stake in Ethereum, the second largest digital asset cryptocurrency by market capitalization.

And this has created a yield-generating product. And I think there are really material issues around things like OFAC compliance, AML, KYC. The ethos of the Ethereum space is all about what they call credible neutrality, which means all actors on the network need to be treated equally, and censorship resistance. I think that this is the immovable force about to collide with the unmovable object. This is really a significant story.

Crypto, the digital asset space, has all kinds of these issues-- regulatory issues that spill into technological issues. And there really are some pretty considerable headwinds in the space right now. And it's a weird thing, Jared, because I am so long-term bullish on this space. But there's just tremendous amount of uncertainty as we have this conversation here in late November 2022.

JARED BILKRE: Well, you want to go into any details there?

ASH BENNINGTON: Sure. So Ethereum-- the people who are passionate about Ethereum are really passionate about building this new alternative, decentralized financial system. And, obviously, from the outside, I think there are a lot of people who are looking at this, particularly people who are in the traditional financial space-- the traditional banking space, the traditional market space-- who are looking at the collapse of FTX, thinking, gosh, we don't want anything to do with this space. This looks just ugly. And maybe they'll change their minds in some number of months or years.

But I think what this is going to do is it's going to almost broaden that divide between what the crypto folks call TradFi and DeFi. And this is an incredibly interesting moment right now for Ethereum now that it's generating yield. These ideals are things that people feel incredibly passionate about, that, essentially, at the protocol level, there should be no censorship. And when you have stories like the one that Reuters reported on, about $8 billion being effectively moved to a sanctioned country through-- I think it was the TRON protocol, there's going to be a significant degree of regulatory scrutiny from the Treasury Department.

OFAC, the Office of Foreign Asset controls, is the primary regulator for sanctions regimes. I think that is the next big story after the FTX mess gets cleaned up. And it's going to be-- I think it's reasonable to say-- a headwind. And the risk there is that the Ethereum ecosystem and other ecosystems-- the DeFi ecosystem-- split out into a regulated onshore version in the United States and an offshore version for the rest of the world. Obviously, that's getting a little bit of ahead of ourselves to speculate. But that is a potential risk in this space, Jar.

JARED BILKRE: Right. And that's what I wanted to get at because isn't that kind of where we are right now? You have the US, and then you have the ex-US. There might be some other countries that have deep-seated regulatory issues. But if Ethereum-- if any platform needs a level playing field, and you don't get that by nature because various nations are going to impose their own rules, regulations, and laws, how does that look in five, 10 years?

ASH BENNINGTON: Well, my hope is that, in five or 10 years, we'll be sorted out. And I think it's not just the US and ex-US. I think it's probably most of the G7 will probably seek to harmonize around this. But this is a real risk, that you're going to have this fracture. And by the way, for me, if I list my own sort of descending-order risks and liabilities, I think OFAC is number one because I just don't believe that sanctions regulators are going to be comfortable with a system that is-- and, again, I'm not taking a position here one way or another.

JARED BILKRE: Sure.

ASH BENNINGTON: But the folks in the Ethereum space are really passionate about censorship resistance and credible neutrality. And I don't think that folks on the OFAC side are going to be OK with that. Excuse me. Then you've got AML, KYC-- plain, old vanilla tax-avoidance and money-laundering issues to worry about domestically. And then, of course, we've got the question of what is and is not a security and whether or not we're going to get to a place any time soon where there are bright-line distinctions between what people in the space like to call utility tokens, which has no definition.

No formal definition is not, in fact, recognized under US law. So there are a whole series of legal headwinds. I realize as I'm saying this, I sound incredibly negative. I think this stuff gets worked out. I think this stuff gets solved. The question is, how long does it take to get solved? Is it six months? Is it 12 months? Or is it 48 months? Very, very difficult to say.

JARED BILKRE: What about the work that has gone into some of the projects that are similar to Ethereum that might compete for its business, like Cardano, Solana? There's thousands-- tens of thousands, hundreds of thousands-- of people hours that went into these. And they have been absolutely decimated. Is all that work for naught? Can some of them be combined?

How do the various platforms -- because this kind of relates to what we are getting back to In the beginning, where you have these exchanges that produce their own securities, that are also broker dealers. Everything's vertically integrated, which makes sense until you introduce leverage and fraud, potentially.

ASH BENNINGTON: Yeah, exactly right. Yeah. So Solana has been uniquely exposed to this because of its role as an asset on FTX's balance sheet and has gotten just absolutely pounded in the process. But also, Cardano-- these are the so-called alt layer-1 protocols, that do some things that are relatively similar to Ethereum, but slightly different. And by the way, on top of that, you have layer-2 protocols that seek to solve some of the scaling problems, basically making transactions slightly less secure or significantly less secure, but lower costs.

So if you're buying a cup of coffee, it's probably not something that needs to get printed on the Ethereum blockchain. So you have things like Polygon, also known by the token name Matic, to basically step in and serve as a different layer-- a layer 2 on top of it-- that can drive down the costs of transactions while weakening the security for the purpose of scalability. All of these projects, as you say, have probably collectively hundreds of thousands of people hours of work into them. Has that all been lost? No, I don't think it's been lost. I think that we're building this ecosystem here for the future.

I just think that markets and maybe some folks in the news media got a little bit ahead of themselves in terms of how ready for prime time this technology was. I've been saying this from the beginning. These are highly speculative assets. Everything in the digital asset space is highly speculative. And people need to know that. People need to understand, that, at the same time-- and it's kind of the idea of you've got to hold these two opposing thoughts in your head together. At one time, something can be both highly speculative and highly volatile and also the future.

Jared, I'll tell you a little bit of a personal story. Back in early 2000-- I guess it was September of 2000-- Microsoft-- there was a major court ruling that Microsoft-- a judge by the name of Penfield Jackson, I believe, ruled that Microsoft needed to be broken up into, I think, three different holding companies because of non-competitive business practices.

In that period, I was one of the young kids on Wall Street in my 20s. And I was working at Credit Suisse private banking at the time. And I went up to Credit Suisse's trading floor because I wanted to be there. I wanted to see what this chaos looked like. There was a sense, even at the time, that this was a pivotal moment. And this was the beginning, ultimately, of the dotcom bubble implosion, later followed by the post-9/11 recession in 2001.

And there was a sense there for a while in 2002, maybe, 2003, where people would say things like, tech is dead, you know. You kids with this crazy internet stuff. You remember this, Jared, and how incredibly negative the world seemed to have gotten on it. But the reality was it was just getting started. And the reason that it was just getting started was because it had a real fundamental value proposition. Not everyone could see it.

But then, as now, when you talk to these young men and young women with degrees in computer science in their 20s, this is all they seem to want to talk about because this-- the problem that this solves, the problem of centralization, and the problem of transparency, and the problem of, strangely enough, paradoxically enough, as we talked about, all these insane risk taking, the problem of being able to document definitively, through the rules of mathematics and science, who holds what asset-- I believe when we come back here and have this conversation in 2032, Jared, that this technology is going to be the technology of the future then, as it is now.

How we get there-- what that road looks like-- boy, these are really dark days right now. And it's really hard to see in the short term and even in the intermediate term things like regulatory risk, as both parties-- Sam Bankman-Fried seems to have done the impossible here. He's unified Democrats and Republicans against him.

JARED BILKRE: Yes.

ASH BENNINGTON: The road to how we get there may be a rocky one. But I really do believe, and I've invested an enormous amount of my time and my career in this. And I plan on being in this space for the next 20 years. And I think that this is where all the action is going to be, although we may be in for a really rough ride for the next weeks, months, maybe even years. But who knows? It could turn around very rapidly. It's just very difficult to say when you have these sort of chaotic nonlinear systems in effect.

JARED BILKRE: I'm glad you brought up Microsoft-- interesting case study. It was over their browser. They were bundling it with Windows way back in the day. And by the way, I think the Justice Department started looking at them in the early '90s. So it took until 2000-- took about a decade to get a decision. And then we had the EU glomming on. And by the way, in the meantime, Google ate Microsoft lunch, with respect to the browser, with respect to search. And they kind of obviated the problem there.

ASH BENNINGTON: But you said it so well, Jared. And that's exactly right. And it sort of brings up two ideas. One, that it can take a very long time. There can be incredible highs. There can be devastating lows. But the technology continues to march forward. And the second is the ability to shuffle the deck in terms of which companies and perhaps, in the case of digital assets cryptocurrency, which protocols are at the top of the league tables.

JARED BILKRE: Yeah, and I have to think that anything that's new and promising, or not even necessarily new-- something promising that didn't get its third day in the sun-- could come up and overtake any one of the existing protocols. And we just don't know how that's going to shake out. We got a couple of minutes left. You were investment banker or on Wall Street in the 1990s. I'm just wondering, anything else you'd like to share from that era? Because it truly was a different era before. That was when we still had the pits. I could go on. Any memories from back in the day?

ASH BENNINGTON: Well, I wouldn't call myself an investment banker. I sneaked through the back door with what's now called fintech, which was then less gloriously called the back office. And if you had a little bit of coding experience, you could get into one of these banks that wouldn't have taken my resume because I didn't have an MBA from Harvard. But, you know, the one thing-- and I spent about a decade of my life working in at banks. And one of the interesting things to me is the degree to which technology-- and to quote Marc Andreessen, that software has just eaten the world.

I worked for a little while-- actually, for a couple of years-- at BB&T, a bank that's now called Truist, working on the high-yield fixed-income trading floor. And in those days, not all that long ago-- 20 years or so, I suppose-- but all of the bonds were traded over the phone. I mean, you literally would have people picking up the phone and bidding and offering on bonds. And there was a pick list out on Bloomberg, and you could do some of this stuff over ECNs. But the degree to which this is-- digitization has been kind of a one-way trade. And that's a really dangerous phrase to use.

But year after year, decade after decade, these systems all became more digitized. And to me, it's almost at 100% certainty that, barring nuclear war or a horrific global pandemic, that when we come back and have this conversation in 2032, the world is going to be more digitized than it is today. To me, that's a foregone conclusion. The question is whether that digitization is going to take the form of these decentralized cryptographic digital assets. My guess is that yes, it is. And never bet against smart, young people.

When you see the smartest, the best and brightest of folks in their 20s, with really serious computer science backgrounds, saying, this is the future-- you were wrong if you bet against them in 1999. You were wrong if you bet against them in 2019. And you're probably going to be wrong if you bet against them today. I really believe that this technology is something that is here to stay. And I think it's something that people really need to explore and understand.

I mean, I'm not giving anybody investment advice. I'm not telling them to buy anything. But by all means, if you're listening to this, and you found some of this conversation intriguing, jump in there and just start learning about this space. Watch videos. Read about it. Come to these conversations that you have, Jared, that I have on Real Vision, and join us because I really believe that we're seeing the future being built. Although sometimes the chart goes up and down, as we've seen from Bitcoin in terms of price, the march of technology is inexorable.

JARED BILKRE: Well, the prices haven't been this good in quite some time. So, yes, we're not giving any financial advice here. But if you want to dip your toes in the water, it only takes one set, right? And I'm not sure how many pennies that equates to, but I would also say, don't bet on some of the seasoned veterans who have been through a number of bear markets and understand risk because there were some people who-- I don't want to say saw this coming, but definitely kept their toes out of this water. And really appreciate you stopping by here. Ash Bennington, senior host and crypto editor over at Real Vision, it's been a pleasure. And I learned a few things here, as I like to do on "Yahoo! Finance Uncut."

ASH BENNINGTON: Such a pleasure, Jared. Thank you so much for having me.

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