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Bahamas reels from FTX collapse: ‘Crypto was going to be our way out’

Sam Bankman-Fried has selected a slice of prime real estate in the Bahamas to build the new headquarters for fast-growing cryptocurrency exchange FTX, hoeing alongside the Caribbean nation’s prime minister in jointly embracing the vast potential of digital assets.

Just seven months later, the stunning collapse of FTX sent shockwaves through an industry that promised to revolutionize finance, and shattered the credibility of the Bahamas — which had placed the cryptocurrency boom at the center of its economic strategy — as a jurisdiction properly policing the digital asset business. .

“Crypto was our way out. We can interact with the global economy in a way we haven’t been able to before,” Stephen Delevue, of the Caribbean Blockchain Alliance, said from a waterfront restaurant on the northern coast of the island group.

“A big part of my business has been ruined – and that’s because of Sam Bankman-Fried.”

The collapse of FTX, once valued at $32 billion, has left venture capital firms including Sequoia Capital suffering significant losses, along with potentially more than 1 million creditors. Many ordinary investors, seduced by the opportunity to make a quick profit. The coastal site that was to be FTX’s headquarters is now deserted, strewn with rubble and overgrown hedges.

Bahamian Prime Minister Philip Davis tweets after he and Sam Bankman-Fred broke ground for FTX headquarters © Philip Davis / Twitter

FTX had recently arrived in the Bahamas, where it was established just over a year ago after moving from Hong Kong. The shift has been pivotal in the cryptocurrency’s bet in the Bahamas as it seeks to diversify away from offshore banking, which has been largely uprooted from rival jurisdictions such as the Cayman Islands.

The Bahamas “were looking at other options, and that’s where cryptography came in,” said Jack Blum, a defense attorney who serves as a senior counsel for the Tax Justice Network, an advocacy group.

It has proven successful, helping to spearhead the island nation’s push to invest digital assets on a larger scale. Just days before the collapse of FTX, rival exchange OKX announced that the Bahamas would be its new regional center after securing registration from regulators.

In the same month that the founder of FTX started with Prime Minister Philip Davis, the company hosted a lavish cryptocurrency gathering at the country’s Baha Mar resort. The guest list was a “who’s who” that helped propel Bankman-Fried to his status as cryptographer, including Bill Clinton and Tony Blair, as well as pop star Katy Perry and NFL legend Tom Brady.

Tony Blair, left, Bill Clinton, center, Sam Bankman-Fried at an FTX event in the Bahamas in April 2022
Sam Bankman Fried, right, hosted a lavish gathering at Baha Mar Resort, with former British Prime Minister Tony Blair, left, and former US President Bill Clinton, center, co-hosting © Trustnodes

“There were big conferences before, but this one was way beyond that,” Delvue recalls, noting that the cryptocurrency crowd was the country’s “golden children.” “Everything they did looked incredibly professional,” he said.

However, in Nassau, the capital on the island of New Providence, where financiers deal with tourists disembarking from one of the many cruise ships, the promising crypto scene has barely left a physical footprint. In part, that’s because Bankman-Fried and his cohorts were running FTX from his rooftop home on Albany, an exclusive luxury resort in the island’s isolated southwest.

The breakup of FTX has brought the Bahamas into sharp focus, and those in power there who have sought to distance themselves from the fallout. Davis last week defended the Bahamas Securities Commission, the country’s chief watchdog, in a speech to Parliament, saying it “has not identified any shortcomings” in the island nation’s regulatory approach.

However, Bankman-Fried’s successor at FTX, John Ray III, said he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information”. Sam Trabuco, co-CEO of FTX’s sister company Alameda Research, called the conditions in the Albany penthouse, where work and leisure mix freely, “toxic.”

Bankman-Fried, now quickly transformed into the industry’s leading villain, made repeated attempts on social media to explain himself, but kept out of the public eye. He did not respond to an interview request from the Financial Times.

Ordinary Bahamians have been left reeling from the rapid turn of events. One local who worked at the Baha Mar Resort said he was “still trying to figure out how something so good can fall apart so quickly.”

John Christensen, an economist and offshore finance specialist, has been very critical of how, in his opinion, FTX gives freedom of action.

“[The authorities] Turning a blind eye to these things is a job well done and everything seems to be running smoothly until it doesn’t. If the prime minister cannot see that a catastrophic failure has occurred in his tenure, then he is failing in his duty,” he said.

The desire to protect its reputation seems to have bled in the tight-knit Bahamian communities. Michael Pintard, leader of the main opposition Free Patriotic Movement, said it was “totally early” to quantify the impact that Bahamas regulation of cryptocurrency might have.

Several law enforcement officials in the Bahamas declined to comment on FTX or its founder. The Bahamas Securities Commission denied a request for an interview.

Pressed for insights into the collapse of FTX, one Bahamian said there was little appetite in the island nation to publicly criticize the authorities. That person said, “You could piss off the wrong person and you might not even realize how it affects you and your business.”

“If the regulator is seen as being very actively involved in trying to understand the business models, looking at the risks, that is somehow seen as ‘anti-business’,” Christensen added.

But Clement Stanley, a D.C. cab driver, objected to those running the Bahamas for not protecting the country’s reputation. The group of islands, he said, is “the crown jewel of the Caribbean . . . we have to protect that reputation at all costs. We were taught that as children.”

His concern was that of ordinary Bahamians, who unlike Bankman-Fried were never given a fair chance at success. He noted that the authorities “do a lot of due diligence on the ‘little guy’, but much less on crypto newcomers.”

“I wish they would give guys like me a chance,” he said.

Video: Cryptocurrency: How Regulators Lost Control

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