The psychiatrist who toppled a crypto giant

Michigan psychiatrist James Block, MD, PhD, investigates financial crimes as a hobby.

Dr. Block, 30, runs cryptocurrency newsletter Dirty Bubble Media, The Atlantic reported Dec. 12. He published a deep dive into crypto exchange FTX, once worth $32 billion and the third largest in the world, and founder Sam Bankman-Fried's crypto trading firm, Alameda Research, on Nov. 4.

One week later, both companies were bankrupt and Mr. Bankman-Fried, who has since been arrested, charged with fraud and conspiracy and denied bail, had fled to the Bahamas

Dr. Block is a self-described crypto skeptic with a fascination for financial forensics, The Atlantic reported. He began applying that fascination to the world of cryptocurrency in June 2021, using open-source tools to track the flow of money between companies.

"Crypto hides behind all this complexity, and people hear words like blockchain and get confused," Dr. Block told The Atlantic. "But you get right down to it, and it’s just a ledger. It’s just like somebody writing down numbers in a book, and it’s page after page of numbers. That’s all it is."

Dr. Block said FTX and Alameda Research created an "incredibly convoluted mechanism" involving FTX's own blockchain token, FTT. Alameda's largest asset investment was in FTT, which could be evidence of price pumping. 

Higher prices for FTT would therefore have meant Alameda itself appeared to be worth more. That higher value could have facilitated loans used to buy more FTT, starting the cycle over again.

"A token is just code they created that has no value, but then you can make it very visible and pump it up to make it valuable," Dr. Block told The Atlantic. But it’s nothing. It’s smoke and mirrors. There’s nothing really complicated there, but it looks complicated if you don’t understand what they’re doing."

Dr. Block said he suspects many more crypto companies engage in similar practices just to "keep things afloat."

"They produce nothing of value," he told The Atlantic. "And realistically, who actually wants their financial information public and visible to everybody?"

Mr. Bankman-Fried was arrested in the Bahamas as part of a U.S. federal investigation for illegal market manipulation, The New York Times reported Dec. 12. He was charged with several counts of fraud, but continues to deny wrongdoing.

"One thing that is interesting is the psychology of all this," Dr. Block told The Atlantic. "I’ve shared a lot of really damning things over the past year with people online—stuff that, if you were to hear about it, you would think any rational person would think, 'What am I doing with my money? I need to get it out as quickly as possible.'"

For every person who listened to his case, Dr. Block said at least 10 more wouldn't.

"It’s kind of sad watching the consequences play out, especially because the people who get hurt the most are the people at the bottom of the food chain," he said.

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