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opinion

Sam Bankman-Fried speaks at the Crypto Bahamas conference in Nassau on April 27.Erika P. Rodriguez/The New York Times News Service

The exact causes of the FTX cryptocurrency exchange’s US$32-billion implosion are still trickling out, but big-picture-wise, this is not new. We’ve seen this movie before.

It happened with terraUSD, a stablecoin that was supposed to be tied to the U.S. dollar. It happened with Celsius Network Ltd., the crypto lender. The gist is that it’s a bank run. For whatever reason, people lost confidence in the operation, and they decided to withdraw their funds en masse.

And lo and behold, the company did not have enough money on hand to cover that. Cue the collapse.

But there is one crucial difference. And that difference means all the scandal and turmoil we have seen so far is only the beginning.

TerraUSD and Celsius, for all their hype, were relatively insider-crypto operations run by folks not particularly notable to the outside, from whom nobody ever expected too much.

Bahamas-based FTX was different. Last year, at age 29, founder Sam Bankman-Fried famously spun his company out of the behemoth Binance exchange, which had a stake in it, because he didn’t feel Binance was regulatorily compliant enough.

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The young billionaire pranced on stage with supermodels and former world leaders Bill Clinton and Tony Blair. Mr. Bankman-Fried’s quirky antics – his sleeping on a beanbag in the office and his passion for effective altruism – endeared him to the world.

Just months ago, amid the crypto crash, Mr. Bankman-Fried’s FTX was bailing out bankrupt crypto firms.

It would be an understatement that crypto enthusiasts might have said, “He was the best of us.” Mr. Bankman-Fried was their lord and saviour, not just in the literal sense, through his bailouts, but also the figurative sense: a new, charismatic, regulator-and-public-pleasing face of the industry.

Now, we’re presented with the fact that Mr. Bankman-Fried, too, could fall. Few people saw this coming. The markets were badly shaken in the aftermath, with bitcoin dipping below US$16,000 at one point from a recent high of about US$21,000 – nearly a one-quarter loss.

The market has pared back some losses since then, with bitcoin rising above US$17,000. But there will certainly be more turmoil in the days ahead.

Part of the reason why is the irony of what happened cannot be overstated.

In the wake of FTX’s troubles, Mr. Bankman-Fried had to crawl back to kiss the ring of Binance after spurning it earlier, taking on an offer of acquisition that reportedly valued FTX at nothing – Binance would cover the withdrawal requests from FTX’s customers, and that was it.

Then Binance rejected FTX after looking at its finances, presumably deciding the hole on the balance sheet was too big to fill. We’ve seen this movie before, too.

Once upon a time, FTX looked at bankrupt Celsius to try to rescue the lender, but then backed out. It saw that Celsius owed too much money for FTX to cover. This wasn’t even that long ago. It was just June.

Now, the saviour has become the damned.

Where do we go from here?

The lone positive aspect of this is that it’s not a problem with the main underlying commodity. It’s not an issue with bitcoin, the original cryptocurrency and the progenitor of the industry. It was the folly of FTX and its own FTT coin, and the questionable way the coin had been used, that caused the massive volume of withdrawals FTX could not handle.

But if FTX can fall this way, if it turns out that Mr. Bankman-Fried the golden boy is just as cavalier, sloppy and reckless as the rest of them crypto cowboys, then perhaps nobody is infallible in this business.

There will certainly be another shoe to drop. It’s just a matter of when.