There is a common phrase that states "don't bite the hand that feeds you". More often than not it is used to describe someone or something picking a fight with another person or power that is either much stronger or much more important to the one starting the fight rather than the one reacting to it. Now a lot of this information is still coming out and some contradictions have already emerged but if everything shakes out based on what is coming out right now FTX is about to take center stage in this commonly used phrase.
So where am I going with this? If you have not seen the news yet I am sure you are going to sooner rather than later. The Securities Commission of the Bahamas announced today, Thursday, November 17, 2022, that last Saturday they had ordered FTX to transfer the contents of its crypto wallets to government-controlled wallets. While a country taking this sort of action especially when the company is based out of said country is not the oddest thing in the world what is is that this has only been announced 5 days after this took place. Not only that but every single subsidiary of FTX and associated companies declared Chapter 11 bankruptcy in the U.S. on November 11th the main entity FTX Digital Marketplace filed for Chapter 15 bankruptcy on November 15th days later and with a different type of bankruptcy.
According to what the Bahamas announced this is right around the time FTX had its huge hack where funds were rapidly drained from the exchange. This adds another wrinkle in the event of well what really happened. Tons of rumors have swirled about it possibly being an inside job, or that it was directed by SBF or even the outside chance that it was an outside hack. Why is all of this important? Easy it is setting up a jurisdictional fight between the U.S. and the Bahamas the likes of which have not occurred in recent history. What makes this even more interesting is well some basic numbers and where the power lies.
FTX Digital Markets might have been headquartered in the Bahamas but that does not mean the rest of these companies were. For a country to unilaterally pull a move like this is rather extreme because of the fallout. At its most basic level when it comes to trading the Bahama's biggest trading partner is the U.S. and it really is not even close accounting for 84.5% of total trade according to the Bahamas government themselves. This means that the Bahamas are picking a jurisdictional battle with their biggest trading partner and the country responsible for the majority of the investments in this company along with many others in the country.
Given internal rumblings within the U.S. right now and with the midterm elections ending up as they have both parties are going to go hard after those who not only hurt American investors but also those that helped facilitate those actions. Some lawmakers have signaled that they want to make an example out of FTX so a government like the Bahamas is really risking tensions over something that might not be worth it. Another factor that will rear its ugly head if the Bahamas get in the way of U.S. investigations is the shady nature of their regulation sector and how people utilize them as a tax haven and participate in illicit finance. Rumors have come out about this as well the SBF is leveraging the Bahamian government to get him out of this mess. While a longshot for sure even the appearance of this is not beneficial for the Bahamian government as restrictions or even threats against the Bahamas would be detrimental to the country. Now is this a prime example of a big government/power picking on the smaller guy? Quiet possibly yes but it is also something that was mostly funded and run in a way to exploit the loophole in the Bahamian regulatory framework and they (Bahamian authorities) are falling right into the trap.
I am hopeful that cooler heads will prevail but at the same time given the crazy and rash decisions, governments appear to be making right now that is not something that can be guaranteed. A ton of things are still unknown and as most have said it really is only likely to get nastier from here on out. To me, this marks the first significant and rapid escalation that is not only unnecessary but counter-productive for every party involved and those watching on the sidelines. Only time will tell how nasty this gets and if governments decide to come together rather than beat each other up.
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