The downfall of the ‘king of crypto’ could reverberate for years: Morning Brief

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Wednesday, Nov. 16, 2022

Today's newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with Yahoo Finance App.

Trust is a vital element in investing — stocks, bonds, you name it. I trusted Walmart when it reported Tuesday that sales increased last quarter. I trusted Walmart CFO John David Rainey when he told me on Yahoo Finance Live about the retailer’s expectations for holiday sales. I trust that when I buy a bond, I will get the principal back with interest at some point in the future.

Unfortunately for crypto, the space now faces a major trust deficiency in the wake of the FTX implosion. The cryptocurrency exchange filed for bankruptcy last week, and its CEO, Sam Bankman-Fried, resigned. SBF, as he’s known, became a crypto billionaire and a star in the industry by the time he was 29. Now, at 30 years old, SBF has lost his fortune and admitted to loaning FTX customer funds to Alameda Research, a trading firm he co-founded.

Cryptocurrency already had a reputation for carrying more risk than traditional investments. But the FTX drama has no doubt sowed even more doubts about digital assets.

"I mean, in fact, in a sense, SBF is like the Jordan Belfort of the crypto era. Instead of 'The Wolf of Wall Street,' they'll make a movie called 'The King of Crypto,'" Microstrategy founder and bitcoin bull Michael Saylor told me on Yahoo Finance Live this week.

Belfort pleaded guilty to fraud connected with stock market manipulation in 1999 and spent 22 months in prison. He was then portrayed by Leonardo DiCaprio in the 2013 movie "The Wolf of Wall Street."

SBF has not been charged with a crime, but a criminal case against him is not out of the question. Federal prosecutors in Manhattan are investigating the FTX collapse, the Wall Street Journal reported, citing unnamed sources familiar with the matter. Still, U.S. prosecutors may run into difficulties because FTX is based in the Bahamas, where SBF lives in a house with a group of friends.

How in the world can you trust an industry where a key player sets up business offshore and then potentially exposes himself to a criminal action anyway?

How can you put a penny of your hard-earned money into crypto knowing it may vanish one minute later because of the absurd actions by a rich person living in the Bahamas?

SBF has tweeted his apologies, writing after the firm filed for bankruptcy: “Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to them.”

Those words alone won’t restore investors' faith in cryptocurrency, if they had any to begin with. But experts tell Yahoo Finance that there are ways crypto can gain more legitimacy. The main elements needed to win back that trust include:

• Tough regulations that treat crypto like securities.

• Repercussions for individuals and businesses that violate the new rules.

• The elimination of suspect cryptocurrencies.

Even with proper regulations and enforcement, the cryptocurrency industry won’t recover overnight from the FTX fiasco. How long could it be before trust comes back?

“I think it takes years,” said Semafor business and finance editor Liz Hoffman on Yahoo Finance Live.

Sounds about right to me.

What to Watch Today

Economy

• 8:30 a.m. ET: Retail Sales, October (1.0% expected, 0.0% in September)

• 8:30 a.m. ET: Import Price Index, October (-0.4% expected, -1.2% in September)

• 8:30 a.m. ET: Export Price Index, October (-0.3% expected, -0.8% in September)

• 9:15 a.m. ET: Industrial Production (0.1% expected, 0.4% in September)

• 9:15 a.m. ET: Capacity Utilization (80.4% expected, 80.3% in September)

• 10:00 a.m. ET: Business Inventories, September (0.5% expected, 0.8% in September)

• 10:00 a.m. ET: NAHB Housing Market Index, November (36 expected, 38 in October)

• 4:00 p.m. ET: Net Long-term TIC Flows, September ($197.9 billion in August)

• 4:00 p.m. ET: Total Net TIC Flows, September ($275.6 billion in August)

Earnings

• 6:00 a.m. ET: Lowe's Companies (LOW) is expected to report adjusted earnings of $3.09 per share on revenue of $23.14 billion

• 6:30 a.m. ET: Target (TGT) is expected to report adjusted earnings of $2.15 per share on revenue of $25.98 billion

• 7:30 a.m. ET: TJX Companies (TJX) is expected to report adjusted earnings of $0.80 per share on revenue of $12.30 billion

• 4:05 p.m. ET: Cisco (CSCO) is expected to report adjusted earnings of $0.84 per share on revenue of $13.31 billion

• 4:20 p.m. ET: Nvidia (NVDA) is expected to report adjusted earnings of $0.70 per share on revenue of $5.80 billion

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