The FTX Scandal - How Can Psychology Explain The FTX Scandal?
Updated on 30th November, 2022
In light of the recent events surrounding the FTX collapse and Sam Bankman, there is a lot of critical information that lies beneath the chaos spreading through the web.
When we think of those who enact harm on others, our minds typically turn toward the villain archetypes that we see in films and literature. These are typically intimidating, evil-looking, and sinister type characters that give off a specific aura of danger and malice.
More importantly, we definitely do not picture a lanky, harmless-looking tech geek or Sam Bankman, founder of the cryptocurrency exchange platform FTX. You may be asking: “I’ve seen Sam Bankman before. So, why are his name and the word villain being used in the same sentence?” Well, let’s run the tape back and provide some context, shall we?
The crypto world has recently received one of its largest scandals, likened to the 2008 financial crisis. The Futures Exchange platform, or FTX for short, was the world’s third largest crypto exchange platform until it collapsed and lost over 8 billion investor dollars… allegedly. To reiterate, an exchange platform is a digital forum where investors and traders can transfer their fiat currency to buy and sell various cryptocurrencies with others around the world. There are hundreds of crypto exchanges available to the public. Still, the public held FTX in high regard, and the platform received investments from corporate behemoths such as Blackrock and Bill Clinton.
If this was the case, why did FTX file for bankruptcy a week ago?
To answer this, we must look into Sam Bankman and how the decisions of a now 30-year-old prospective billionaire shocked the financial world and destroyed the lives of thousands that had placed their trust in him.
In the public’s eye, Sam Bankman was a perfect billionaire who appeared to be an empathetic philanthropist, a humanist, and most of all, a humble man that would drive a worn-out Toyota despite having millions in his account.
Bankman had a vision of using crypto to reduce inequality in the world and bring marginalized societies closer together through decentralized cryptocurrency. He preached about an overarching philosophy called “Effective Altruism,” which referred to the using wealth and riches effectively to help others in need – Sounds charming right?
This is precisely how Bankman and FTX wooed giant investors such as Clinton and Blackrock to place a bet in favor of his mission and promises. In the end, what better way to gather funds from prominent investors but also from the average working individuals than through idealistic promises and visions of universal prosperity?
Hence, FTX received a consistent stream of investments, donations, and clients, gaining a 25-billion-dollar valuation, until it all collapsed and FTX blocked users from moving their assets out of the platform.
The collapse can be traced back to Bankman’s idea of using customer wallets to save his sister company “Almeda Research” from going bankrupt. Not only this, but he went as far as to create new FTT tokens (I.e., Bankman’s own cryptocurrency) out of thin air in an attempt to save Almeda.
To put into perspective, imagine one of the world’s largest banks, which promises safe and secure services, uses the money stored in your account to fund a shady company with which you have absolutely no ties. After this initiative fails, not only is your money returned, but you find that you are unable to withdraw your remaining finances as they have entirely disappeared.
This includes your savings, pensions, investments, and more – Not the most altruistic behavior, is it?
This is where it is crucial to delve deeper into the psychology of an individual that, despite harmless appearances, is capable of ruining the lives of thousands with apathy and ignorance.
The Psychology of Sam Bankman
How do we characterize an individual that preaches equality and altruism while simultaneously displaying behaviors that correspond with deceit and clear manipulation?
As we said, many are openly deceitful and harm others in overt ways. They don’t try to hide it; in reality, they are simply terrible at masking their dark side.
What led Bankman to, on the one hand, preach about empathy and saving the world while consciously using millions of investor money to fit his own purposes on the other?
This is important to consider as his actions go directly against his overarching philosophy of Effective Altruism. Taking millions of dollars away from people is a form of theft, something that is the total opposite of giving back to those in need.
Was he ignorant of their needs? Did he feel a sense of superiority over others? Or did he only care about his own personal interests this entire time? This may all be speculation, but a few psychological concepts enable us to explain why many ultra-rich individuals end up using others for their own nefarious purposes. In personality psychology, there is a field of study that specifically focuses on researching the dark side of human thought and behavior. Within this field of research, they have unearthed the presence of certain personality traits that explain the darker aspects of human nature – When we take into account the evidence to analyze the personality of Bankman, there is one trait that seems to be of particular relevance: Machiavellianism.
Considering this, what aspects of Bankman’s behavior do you think ressembles Machiavellian actions?
All we have to do is look at how Bankman managed to secure billions in investments by disseminating a romantic vision of the world: Effective Altruism. Tricking thousands of individuals, ranging from Bill Clinton to the average investor, to buy into a wonderful world of altruism only to use those billions of dollars put in his trust to do the complete opposite is a textbook Machiavellian act that would make Niccolo himself proud.
Moreover, remember how we discussed that Bankman liked to display a public image of a humble billionaire who drives a worn-out Toyota and never wears designer clothing? Well, once the scandal unfolded, this image was rapidly shown to be a complete farce. Despite attempting to appear as a humble everyday individual, Bankman actually lived a luxurious life, owning multiple mansions in the Bahamas and traveling in private planes around the world to eat at the swankiest of restaurants.
In any case, the evidence at hand does not point to an innocent and harmless tech geek but more to a cunning and highly calculated individual playing chess with the world. Research also shows that highly Machiavellian people equally display overlaps with adjacent dark personality traits such as narcissism and psychopathy. We must also keep this in mind when analyzing the psychology of Bankman, as he has behaved in a way that demonstrated an overt disregard for others and an obsession with his own needs.
This is consistent with the way in which Bankman handled the scandal. Another neglected but critical piece of information reveals more dark traits in his personality.
This next piece of information still lies shrouded in mystery, with many considering it to be conspiratorial, but while FTX was collapsing and investors were attempting to withdraw their assets, 1.8 billion dollars in FTT tokens suddenly disappeared.
Bankman stated on record that this was a hack, but some believe that this money was moved from a backdoor by Bankman or his associates and kept away as a safety measure to protect him from total bankruptcy. If this is the case, it confirms that Bankman indeed has a dark side behind his personality that displays a complete disregard for others and that he is not the empathetic and pure individual he led us to believe.
The Bottom Line
Ultimately, those at the very top of society all seek to appear in a positive light in the eyes of the public - For what purpose? Most of us don’t know.
However, according to psychology, it is extremely difficult to be genuinely pure at such echelons, and the prevalence of dark personality traits such as Machiavellianism becomes increasingly apparent the higher an individual climbs in the social ladder. Considering this as well as the recent events surrounding Bankman and FTX, a clear warning has been echoed throughout the financial world to be cautious of whom to trust, especially if they are preaching to do good in the world.