Skip to content

Blowing Up the Crypto Cartel

How FTX’s collapse broke an omerta

Despite claims of “decentralization,” the cryptocurrency industry is controlled by a powerful cartel of wealthy figures who, with time, have evolved to incorporate many of the same institutions tied to the existing centralized financial system they supposedly set out to replace.
—Jackson Palmer, cofounder of Dogecoin

In early 2021, when I started reporting on the sordid machinations of the cryptocurrency industry, I met a pseudonymous Twitter personality named Bitfinex’ed. Spend any time in the crypto “space,” especially as a critical voice, and you will invariably encounter Bitfinex’ed. Or more likely, he will find you. He’s best known for his indefatigable, yearslong campaign against Tether, a crypto company whose dollar-pegged token effectively serves as the reserve currency for the entire crypto economy. But his criticisms extend beyond Tether to the widespread fraud, market manipulation, and self-dealing that is characteristic of the industry writ large.

Based offshore, its CEO rarely seen in public, Tether is a notoriously shady operator that’s generated shell companies and falsified documents, a glut of lawsuits, more than $60 million in settlements with regulators, an ongoing criminal investigation, allegations of laundering money for terrorists, a ban on doing business in New York State, and on and on. For Bitfinex’ed—and for many skeptics, journalists, armchair investigators, salty crypto traders, and even a few people in positions of genuine power—Tether is both the most important company in crypto and its most corrupt. Its fall seems assured, a practical moral necessity if the crypto industry is ever to mature and come in from the cold—or from the tropical tax shelters where companies like Tether do business.

Yet despite the perpetually swirling storm clouds, the thunderous collapse of FTX last fall, and numerous other bankruptcies across the industry, Tether only grows, with more than $82 billion of its tokens in circulation. Tether skepticism—while corroborated by reams of reporting, including by the New York attorney general—has become such an overworked parlor game that the company’s critics are sometimes derided as paranoiacs or obsessives. We’re called Tether Truthers, in the mildly derogatory parlance of the company’s defenders. How long, they ask, are we going to keep banging this drum?

A self-described whistleblower, Bitfinex’ed is intense and righteous, challenging his trolls with an unceasing sense of outrage. He posts constantly, and even some industry figures have come to grant him credit and the gift of foresight, given that his accusations tend to be borne out in the long term—he was, for instance, an early critic of FTX founder Sam Bankman-Fried, a major Tether business partner. He has amassed an archive of screenshots, interview recordings, legal filings, leaked emails, and other documents outlining Tether’s mystifying behavior, from refusing to audit its books to allegations of bank fraud to seemingly incriminating statements by former executives. These documents and bits of digital ephemera were frequently damning, and for a journalist falling down the crypto rabbit hole, a useful education.

Some have dismissed Bitfinex’ed as a crank, but his relentless criticism has an impact. Tether fought back with blog posts refuting his lengthy Medium posts and—Bitfinex’ed has alleged—a campaign of intimidation and bot-fueled misinformation. As early as 2017, the New York Times cited Bitfinex’ed’s work, particularly his central claim that Tether was minting tokens without any real dollar backing.

Bitfinex’ed told me one thing that I had difficulty nailing down. In his narrative, crypto is not just a largely unregulated, jurisdiction-less industry teeming with bad actors whose profitable grift is enabled by their development of a parallel, mostly pseudonymous financial system. It’s something more structured and recognizable: a cartel. The crypto industry, as Bitfinex’ed and other sources have alleged to me over the years, is dominated by perhaps less than two dozen men, often acting in concert to rig markets, share insider information, trade against everyday retail customers, and flagrantly break the law—if the law could even be said to apply to some of these businesses. And they do it largely through group chats on apps like Signal, Discord, and Telegram. Some of these string-pulling figures are well known; others less so. But that is the basic schema and has been for at least a decade.

It’s a cartel in the classic economic and business sense—OPEC, not Sinaloa—a small group of connected actors working together to dominate a market that they only recently helped create. For crypto, where money is fake, value is purely hype-based, and new tokens can be spun out of nothing, it makes perfect sense. It’s a small industry, notionally worth $3 trillion at its peak in November 2021 but now hovering around $1 trillion. Many leading crypto luminaries know each other, interact on social media, trade with each other, and hobnob at small private gatherings like the Satoshi Roundtable, an annual invite-only meeting of select crypto insiders. Last spring, I confirmed via some attendees that Jean-Louis van der Velde, Tether’s elusive Hong Kong-based CEO, was at the invite-only FTX conference in the Bahamas, alongside luminaries like Bill Clinton and Tony Blair. In a public Twitter exchange, Bankman-Fried—whose Alameda hedge fund allegedly bought at least $36 billion worth of Tether in just a few years—said he didn’t know if van der Velde was there. I didn’t believe him.

Many crypto power players have histories with poker, online gambling, offshore finance, and/or other gray-market economies. A lot of them do business via so-called OTC, or over the counter, trades: person-to-person exchanges that might not leave a trace on the blockchain, crypto’s supposedly transparent public ledger. Over time, the industry, including its black-market participants, has developed its own protocols, social codes, and, as interests aligned, what amounted to an omerta. What was good for one member was often good for the rest.

As a framing vision of what crypto is, of how its most important participants operate, the cartel theory seems to cohere. The more one observes the industry, working past the fog of hype and misinformation, the more this outline takes shape. In reporting on the industry’s influential centralized exchanges, its murky flows of money, and its cozy relationships with regulators here and abroad, other people have made claims to me about private group chats and insider coordination. But no one was able to provide the kind of documentary proof or on the record testimony that would get me past an editor’s inbox.

So for two years, I held onto the idea of the crypto cartel and occasionally aired it out on Twitter. It accreted an increasingly useful explanatory power, well before companies began toppling last spring. I logged connections and shared histories between major industry players, and I noted in my reporting the frequent overlaps of financial interests, the aligned incentives, and the curious tendency for big crypto exchanges to work in concert, sharing investors, key personnel, and sometimes, it seemed, the same pot of money. (Last year, the crypto world perked its ears up when the exchange “accidentally” sent $416 million worth of Ethereum to Gate.IO, another exchange. Gate.IO returned most of the money but not without sending millions to another unidentified entity.)

Hard evidence seemed elusive, and a lot was easily explained away when people’s bankrolls were on the line. Even when the government took enforcement actions against crypto Ponzi schemes or negotiated settlements with Tether over its violation of banking laws, as it did in 2021, the industry did not seem to care. It was a simple matter of money, of everyone dipping into the same big bucket of crypto that had very little real money behind it. That would become apparent when FTX experienced a bank run in November 2022, and the company eventually was forced to reveal that billions of dollars in deposits were no longer there. They had been funneled out the side door to Bankman-Fried, his hedge fund, and his friends.

FTX’s collapse helped draw further scrutiny to crypto’s banking practices. Until then, what allowed the cartel to keep the lights on was that most of them banked at the few remaining crypto-friendly banks, which provided specialized services, including an extreme tolerance for risk.

In the United States, thousands of crypto companies, including top firms like FTX and Binance, held accounts at Silvergate Bank and Signature Bank. If the names are irritatingly similar, the products on offer to the crypto industry were basically the same. Both banks had what were called private settlement platforms—essentially, a marketplace within the bank where clients could exchange money between one another in real time without fees and, most importantly, without any money leaving the bank, with the attendant regulatory scrutiny and paperwork trail. In the compliance-averse crypto industry, these settlement platforms were enormously useful. Signature had Signet and Silvergate had SEN; together they covered most of the industry. Companies like Binance and FTX maintained accounts under the names of shell companies, making it easy to access the U.S. banking system, accept deposits from U.S. retail customers, and do business with peers. The ultimate benefit was that potentially dirty money could go into a U.S.-registered bank, get mixed around on one of these settlement platforms, and then eventually be sent, cleaned, to other U.S. banks in the normal course of business.

Access to the U.S. banking system, and to real dollars from customers, is essential to the cartel business model. It was inevitable, then, that it would all fall apart.

Keep Your Frenemies Close

The most convincing evidence of a crypto cartel eventually came from Bankman-Fried himself. On December 13, 2022, one month after SBF’s crypto empire contracted from $32 billion to zero in a matter of days, Forbes published a transcript of testimony that the defrocked mogul, holed up in a Bahamian penthouse, planned to give to Congress. He wouldn’t get the chance; he was arrested the next day and later extradited to the United States to face an indictment that now stands at thirteen felony charges.

It’s a cartel in the classic economic and business sense—OPEC, not Sinaloa—a small group of connected actors working together to dominate a market that they only recently helped create.

As the product of an accused historic fraudster with a cipher for a personality, the written testimony is fascinating. Much of the document consists of self-defense—claims that SBF could still salvage the situation, denials of criminal activity, criticisms of FTX’s new leadership, as well as wonkish histrionics. At times, the text becomes confessional. He expresses regret over signing a bankruptcy filing at 4:30 a.m., when, the accused fraudster promises, a rescue package had been just around the corner. He goes maudlin, talking about the antidepressant he took, attempting to refute rumors about a drug addiction. “I am, and for most of my adult life have been, sad,” he laments.

But it was the section where SBF goes after his former business partners—finally breaking the omerta—that provides definitive proof of the crypto cartel’s existence. It’s right there, in screenshots of an encrypted Signal group chat called “Exchange coordination,” a name practically begging for a RICO charge. In his submitted testimony—to Congress!—SBF included screenshots of a discussion between himself, Binance CEO Changpeng Zhao (also known as CZ), industry executive Zane Tackett, and unnamed others. (Tackett was one of the people who told me, in a public Twitter post, that Tether’s CEO was at the FTX Bahamas conference.) Further leaks and reporting on the chats revealed the participation of then-Kraken CEO Jesse Powell as well as Justin Sun, an absurd huckster figure who’s somehow amassed a multibillion-dollar empire of shitcoins and at least one ambassadorial title from the island nation of Grenada. This was the fabled group chat, where the big decisions were made.

In the specific exchange that SBF highlighted, he was defending himself against accusations from CZ that he was trying to de-peg Tether—that is, knock it down from its $1 value, which could imperil the market, or else represent a lucrative arbitrage opportunity for an aggressive trader. The financial details and trading mechanics are relatively unimportant, except to note that CZ seemed concerned about a series of $250,000 short bets SBF’s company appeared to be making. That trades of a relatively small size would concern CZ showed how small and interconnected the crypto economy really was. CZ attached a screenshot of a text from Paolo Ardoino, the CTO and public face of Tether, asking that he do something about SBF’s trades.

“Stop trying to depeg stablecoins,” CZ wrote in the chat in November 2022. “And stop doing anything. Stop now, don’t cause more damage. Pause trading, pause withdrawal of only TRON @Justin Sun. Let the rest play out.” (TRON is a blockchain and token managed by Justin Sun, one of a number of exchanges, tokens, and other crypto projects he controls. It is also one of the main blockchains for using Tether tokens.)

“Huh?” SBF replied.

“The more damage you do now, the more jail time,” said CZ.

SBF asked CZ if he really thought $250,000 trades would de-peg Tether, with its market cap in the tens of billions. CZ said it wouldn’t succeed but that it was creating “small issues here and there, and more work for market makers”—the trading firms that provide liquidity to crypto exchanges. (In addition to his role at Binance, the world’s largest crypto exchange, CZ owns at least one market-making firm under investigation by U.S. authorities.)

“My honest advice: stop doing everything,” wrote CZ. “Put on a suit, and go back to D.C., and start to answer questions.”

He then asked if anyone objected to him removing SBF from the group chat. “I think we should coordinate a bit to see how we best work together to help stabilize and restore confidence for the market,” said CZ. The cartel had business to do, and SBF was no longer a member in good standing.

The screenshots don’t tell the whole tale. CZ may have been genuinely concerned about SBF’s trades, but the growing rift between the two—Binance was an early FTX investor—was bigger than just this conversation. The two moguls had found themselves increasingly in competition, and SBF had begun criticizing CZ and Binance in public. At one point, he even joked on Twitter with Ryan Salame, an FTX executive, that CZ might not be allowed in the United States, a reference to reported civil and criminal investigations into Binance and CZ himself. Later, Binance would accuse SBF of having bad-mouthed CZ to U.S. politicians and regulators, ostensibly serving him up as a target.

As for why the hell a fallen billionaire crypto CEO would publish screenshots indicating his involvement in possible market-rigging and other occult collaboration, my theory is that Bankman-Fried, despite his protestations of innocence and Silicon Valley power-nerd arrogance, knew he was going down. He wanted to make sure his enemies came with him. The “Exchange coordination” screenshots gesture at a level of secret cooperation encompassing the industry’s most powerful figures. For any investigator, they would be an automatic cause to subpoena the full chat (whose messages seemed to be set to delete after four weeks). The screenshots were a grenade, and SBF was all too happy to pull the pin, as long as CZ was in the blast radius.

FUD Fight

The day after Forbes published his testimony, SBF was arrested, and the omerta officially dissolved. The floodgates opened, but instead of cleansing waters there was only sludge. The political and rhetorical positioning that played out over social media, cable news, and legal filings had a noxious air of desperation. Former business partners began denouncing SBF as the industry’s chief villain, one who was finally being driven out. Blame was cast everywhere, though mostly outward; the SEC, the Biden administration, crypto critics, and Bankman-Fried’s dad apparently all had a lot to answer for. New con artists, people who promised to get your crypto back, to give you top rates on your bankruptcy claim, emerged to prey on the victims of the old. There was an overflow of these launchpad scammers: grifters using the FTX drama to launch their own media careers or pump-and-dump schemes (often, they arrived in tandem).

Because crypto is not a viable alternative to the traditional financial order, it can be stage-managed by inside operators, colluding in group chats.

Do Kwon—the fugitive founder of the failed Terra stablecoin, which helped kick off crypto’s latest economic crisis—emerged in a live stream with the two founders of Three Arrows Capital, yet another failed crypto hedge fund. Exemplars of the ultra-confident, ultra-reckless crypto bro archetype, the 3AC guys had fled their Singapore corporate base after their multibillion-dollar fund collapsed. It turned out they were now in Indonesia and Dubai—neither of which has a formal extradition treaty with the United States—and were ready to reflect. The two men joined the shit-talking, celebrating the downfall of SBF, a once-powerful colleague turned industry sin-eater. At some point, because why not, obnoxious pharma profiteer Martin Shkreli, now released from prison and trying his hand at crypto, entered the chat. “Jail is not that bad,” he said, reassuring Kwon, who would be arrested four months later in Montenegro while on the run from U.S. and South Korean authorities. This is what passed for crypto industry self-examination in the wake of SBF’s comeuppance.

As more companies failed throughout the winter and into the new year, as more indictments and lawsuits appeared, regulators began trying to clean up the mess that had formed on their watch. Despite losing billions of consumer dollars, the crypto industry expressed little contrition or humility. They resented regulatory intrusions from an administrative state that had been co-opted by crypto’s worst fraudster—their former colleague, who, as part of a vast political operation that has led to charges of campaign finance violations, funneled donations to at least a third of Congress. (Many other crypto companies were in the business of influence peddling but tended to do so more quietly and less successfully than FTX.)

By the end of 2022, the crypto cartel showed signs of rupture. Its erstwhile members blasted each other’s projects as useless, launched lawsuits, and issued baroque vows of revenge. People posted DM screenshots, hidden camera videos, and incomprehensible stories of betrayal driven by greedy appetites for dog-themed tokens. Stock prices fell, and assorted crypto banks, exchanges, lenders, and Bitcoin miners filed for bankruptcy, leaving millions of customers’ assets in limbo. On Twitter, the Winklevoss twins, having moved on from battling Mark Zuckerberg to become major crypto whales, commenced pointing fingers at their business partners while facing their own accusations of fraud. It was messy and melodramatic and, admittedly, pretty entertaining.

Perhaps most consequentially, crypto began to lose access to the U.S. banking system. Facing renewed government scrutiny, some banks decided to shed their crypto businesses. Silvergate fell into bankruptcy in March. After the FDIC stepped in to save depositors at Silicon Valley Bank later that month, New York regulators seized Signature Bank—to the great outrage of crypto investors and former congressman Barney Frank, who had taken a lucrative position on Signature’s board. The on-ramps and off-ramps between crypto and the real-dollar system it reluctantly depends on are beginning to close.

But it isn’t over. Digital asset prices rallied somewhat unexpectedly this year, offering hope against hope that consumer crypto still has something in the tank. Major VC funds like Paradigm and Andreessen Horowitz have money to dole out for tokens that they can later dump onto the last vestiges of the retail crypto market. Among the executives still standing, there is a frequent emphasis on ignoring FUD, otherwise known as fear, uncertainty, and doubt. Despite intensifying legal headwinds, including a baker’s dozen of charges from the SEC, Binance remains by far the biggest crypto exchange, and CZ has developed a shorthand—simply, the number 4—which he posts to remind his fans, and the many bots who reply to his every utterance, to pay FUD no mind. These are longtime crypto clichés, but they act as a rallying cry for a beleaguered industry. Forget Sam, forget the press, forget the haters, forget SEC Chairman Gary Gensler. Demand “regulatory clarity” and the right to innovate. Keep building. The next bull run can’t be far away.

As long as crypto is run by offshore operators using a parallel financial system that is only partly visible to regulators, law enforcement, and the general public, there will always be incentives for insiders to collaborate, exchange privileged information, and work to their mutual advantage. There remains profit to be squeezed out of this industry, even as its most recognizable face now stands accused of an array of serious crimes. It is precisely because crypto is not a viable alternative—much less an existential challenge—to the traditional financial order that it can be stage-managed by inside operators, colluding in group chats.

Sure, there are many people in crypto, maybe even the bulk of participants, who are in it for honest reasons: they like the technology, they appreciate the novelty, they have libertarian ideas about the separation of the state and money, or perhaps they just want to gamble and try to get rich. But these people, the ones who actually bring much-needed fiat dollars into the system, are playing a different game. They are at a severe disadvantage, buying tokens at artificially inflated prices from venture capitalists and exchange CEOs who got them at friends-and-family discounts from their colleagues. As crypto critics like to say, these retail traders are the exit liquidity for the tech billionaires promising economic emancipation. They are the means by which the people running the cartel cash out. They are the marks. And they can’t be allowed to get away.