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From Tips to TikTok, Trump Swaps Policies With Aim to Please Voters

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The former president’s economic agenda has made some notable reversals from the policies he pushed while in the White House.At his convention speech last month, former President Donald J. Trump declared that his new economic agenda would be built around a plan to eliminate taxes on tips, claiming that the idea would uplift the middle class and provide relief to hospitality workers around the country.“Everybody loves it,” Mr. Trump said to cheers. “Waitresses and caddies and drivers.”While the cost and feasibility of the idea has been questioned by economists and tax analysts, labor experts have noted another irony: As president, Mr. Trump tried to take tips away from workers and give the money to their employers.The reversal is one of many that Mr. Trump has made in his bid to return to the presidency and underscores his malleability in election-year policymaking. From TikTok to cryptocurrencies, the former president has been reinventing his platform on the fly as he aims to attract different swaths of voters. At times, Mr. Trump appears to be staking out new positions to differentiate himself from Vice President Kamala Harris or, perhaps, just to please crowds.To close observers of the machinations of Mr. Trump’s first term, the shift on tips, a policy that has become a regular part of his stump speech, has been particularly striking.“Trump is posing as a champion of tipped restaurant workers with his no-tax-on-tips proposal, but his actual record has been to slash protections for tipped workers at a time when they were struggling with a high cost of living,” said Paul Sonn, the director of National Employment Law Project Action, which promotes workers’ rights.In 2017, Mr. Trump’s Labor Department proposed changing federal regulations to allow employers to collect tips that their workers receive and use them for essentially any purpose as long as the workers were paid at least the federal minimum wage of $7.25 an hour. In theory, the flexibility would make it possible for restaurant owners to ensure that cooks and dishwashers received part of a pool of tip money, but in practice employers could pocket the tips and spend them at their discretion.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Crypto’s Wild D.C. Ride: From FTX at the Fed to a Scramble for Access

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    FTX’s demise and its leader’s upcoming trial haven’t stopped a major lobbying push by the industry this week, but the events have changed its tone.Cryptocurrency lobbyists were riding so high in early 2022 that an FTX executive felt comfortable directly emailing Jerome H. Powell, the chair of the Federal Reserve, to ask him to meet with Sam Bankman-Fried, the soon-to-be-disgraced founder of the cryptocurrency exchange.It worked.“The day that would work for me is February 1,” Mr. Powell replied to a Jan. 11 email from Mark Wetjen, an FTX policy official and former commissioner at the Commodity Futures Trading Commission.Mr. Powell’s public calendar shows that he and Mr. Bankman-Fried met as planned. And Mr. Wetjen went on to send the Fed chair two policy papers that FTX had recently published, according to emails obtained through a public records request. “Hope you’re finding these useful!” Mr. Wetjen wrote. “Great to have people like you serving our country.”Mr. Powell has long been cautious about the digital currency industry, but, like many in Washington, he was trying to learn more. FTX was eager to do the teaching. According to newly released records, Mr. Wetjen managed to gain access to a range of federal officials. The records show that Mr. Bankman-Fried secured a virtual meeting in October 2021 with another top Fed official, Lael Brainard, who is now the director of the White House National Economic Council. And public calendars show that Mr. Bankman-Fried went on to meet with another top financial regulator, Martin Gruenberg, head of the Federal Deposit Insurance Corporation.The crypto industry faces a more difficult landscape in Washington after last fall’s collapse of FTX. Mr. Bankman-Fried was arrested on fraud charges in December, and his trial is set to start on Tuesday. The industry has also faced a wide-ranging government crackdown that has sent some crypto entrepreneurs abroad in search of friendlier governments.The companies that have survived crypto’s downturn are still pouring millions of dollars into lobbying, but they are having a harder time gaining access to the halls of power. Some congressional offices have become reluctant to meet with industry representatives. Crypto lobbyists appear less frequently on the public calendars of key officials at the regulatory agencies, and companies have had to shift strategy, straining to distinguish themselves from FTX.“There are a bunch of people who’ve had trouble having meetings,” said Sheila Warren, who runs the Crypto Council for Innovation, an advocacy group. “I have heard from some offices that they will not meet with certain people anymore.”With Mr. Bankman-Fried’s trial approaching, the crypto industry is scrambling to change the subject from FTX.Stand With Crypto, a nonprofit backed by the giant digital currency exchange Coinbase, is planning to hold a “fly-in” on Wednesday, bringing in industry players from around the country to talk with lawmakers.“It has been quieter — and more circumspect, in some respects — but the push from the industry hasn’t abated,” said Mark Hays, who tracks cryptocurrency regulation at Americans for Financial Reform. “The crypto industry knows that its star has been tarnished on Capitol Hill, to some extent.”The mood in Congress was friendlier to the industry in early 2022, when FTX was at its zenith: Mr. Bankman-Fried had been positioned as a sort of wunderkind, eccentric and brilliant. But since its collapse, many lawmakers have argued that the industry should be overseen more strictly.“The tone has certainly changed among Democrats — they’re much more skeptical,” said Bart Naylor at Public Citizen, a government watchdog that has been tracking cryptocurrency lobbying.Regulators were more hesitant to embrace crypto firms even in 2022. It was unusual that FTX directly landed a meeting with the Fed chair.Read the emailsA selection of correspondence between FTX and the Federal Reserve, pulled from a series of Freedom of Information Requests submitted by The New York Times.Read DocumentMr. Powell’s only other listed private-sector meetings in February 2022 were with Jane Fraser, the chief executive of Citigroup; David Solomon from Goldman Sachs; Suzanne Clark from the U.S. Chamber of Commerce; James Gorman, the chief executive, and Tom Wipf, a vice chair, from Morgan Stanley; Jamie Dimon, the chief executive of JPMorgan Chase; the Business Council, a group of chief executives; and the head of Singapore’s sovereign wealth fund.Mr. Powell has met with other financial technology companies — he talked with a representative from the payment processor Stripe in March 2022, for example. But he has not listed similar meetings in 2023, based on his calendars released to date.At the meeting with Mr. Bankman-Fried, Mr. Powell and the FTX officials discussed stablecoins as well as central bank digital currencies, a form of electronic cash backed by the government, a person familiar with the matter said.Mr. Powell has met with other financial technology companies in the past. But he has not listed similar meetings in 2023, based on his calendars released to date.Kevin Dietsch/Getty ImagesMr. Wetjen knew many of the agency officials with whom he was setting up meetings from his previous policy role in Washington. He and Mr. Powell had worked on regulatory issues together while Mr. Powell was a Fed governor, for instance.Dennis Kelleher, the head of the regulatory watchdog Better Markets, said FTX had exercised an extensive web of influence in broader regulatory circles, partly through Mr. Wetjen’s connections.“This is the problem: These relationships, which are not visible to the public, pay dividends year after year after year once these guys swing through the revolving door,” Mr. Kelleher said. FTX also flooded Washington with money, which helped it gain a foothold in congressional offices and at think tanks, he and several lobbyists said.The Fed did not provide a comment for this article, nor did Mr. Wetjen. The White House had no comment on Ms. Brainard’s meeting with Mr. Bankman-Fried. An F.D.I.C. spokesman noted that chairs of the agency often held courtesy visits with financial firm leaders.Back in 2022, FTX was trying to shape how the Commodity Futures Trading Commission regulated it, as Mr. Wetjen made clear to Mr. Powell in one email from that May.“We have an application before the C.F.T.C. that lays out for the agency how to do so,” Mr. Wetjen wrote of regulating FTX. “All the C.F.T.C. has to do is approve it.”The Fed had little control over such matters, but Mr. Powell does sit on the Financial Stability Oversight Council, an interagency regulatory body that includes the director of the Commodity Futures Trading Commission.Mr. Wetjen continued: “To the extent the crypto industry comes up in discussions” at the Financial Stability Oversight Council, “we wanted you to have this context and our views at FTX.”The company clearly failed to make much headway with the Fed chair. Mr. Powell supported an October decision by the Financial Stability Oversight Council to further study the kind of setup that FTX and other trading platforms wanted for crypto asset exchanges, rather than greenlighting it.Now, FTX’s demise has only bolstered the arguments of regulators who wanted to approach crypto firms carefully. This year, the Securities and Exchange Commission has sued Coinbase and Binance, FTX’s two largest competitors, amid a broader government crackdown. With Mr. Bankman-Fried out of the picture, other financial technology companies are spending millions to make sure that the future of regulatory oversight favors them.Mr. Hays of Americans for Financial Reform said the industry was hardly being shunned in Washington, because “money talks.”“I still think they’re getting doors opened.” More

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    Why Ron DeSantis Is Taking Aim at the Federal Reserve

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    Florida’s governor has been blasting Jerome H. Powell, the Fed chair, while spreading misinformation about central bank digital currency.WASHINGTON — Gov. Ron DeSantis of Florida, who is preparing to take a widely anticipated leap into a 2024 presidential campaign, appears to have discovered something that populists throughout history have found to be true: Bashing the Federal Reserve is good politics.Mr. DeSantis has begun to criticize Jerome H. Powell, the Fed chair, in speeches and news conferences. He has alleged without evidence that the Biden administration is about to introduce a central bank digital currency — which neither the White House nor the politically independent Fed has decided to do — in a bid to surveil Americans and control their spending on gas. He has quoted the Fed’s Twitter posts disparagingly.His critiques echo a familiar playbook from the Trump administration. Former President Donald J. Trump often blasted the central bank during the 2016 campaign and while he was in office, as policymakers lifted interest rates and slowed economic growth. Mr. Trump at one point called Mr. Powell — his own pick for Fed chair — an “enemy,” comparing him to President Xi Jinping of China.Because the central bank is responsible for controlling inflation, it is often blamed both for periods of rapid price increases and for the economic damage it inflicts when it raises rates to bring that inflation under control. That can make it an easy political target.And populist skepticism of government control of money dates back centuries in America. The nation’s first and second attempts at creating a central bank failed partly because of such concerns. The Fed, set up in 1913, was designed as a decentralized institution with quasi-private branches dotted around the country in part to avoid concentrating too much power in one place. It has been the subject of conspiracy theories and political attacks ever since.“In many ways, it is not surprising at all,” said Sarah Binder, a political scientist at George Washington University who has studied politics and the Fed. Mr. DeSantis is placing himself to Mr. Trump’s right, she said, “and it sounds like many populist right-side critiques of the Fed, of monetary control, that we’ve heard throughout history.”Mr. Powell has stated that the Fed “would not proceed” on a digital currency “without support from Congress.”T.J. Kirkpatrick for The New York TimesWhile Mr. DeSantis’s Fed-bashing is not new, some of his remarks have strayed into misinformation, said Peter Conti-Brown, a lawyer and Fed historian at the University of Pennsylvania.“The Fed can and should take this seriously,” Mr. Conti-Brown said.While the Fed is independent of and largely insulated from the White House, it does ultimately answer to Congress. And a lack of popular support could curb the Fed’s room to maneuver: If the government decided that pursuing a digital currency was a good idea, for instance, the backlash could make it more difficult to do so.Mr. DeSantis’s tone could also offer hints about the future. Starting from the early 1990s, presidential administrations have largely respected the Fed’s independence, avoiding commenting on monetary policy. Mr. Trump upended that tradition. President Biden has returned to a hands-off approach, but the recent criticism offers an early hint that the détente may not last if a Republican wins in 2024.Mr. DeSantis has faulted Mr. Powell’s policies for failing to control inflation, recently calling the Fed chair a “complete disaster.”In Mr. Powell, the potential presidential candidate has a rare opportunity to criticize Mr. Trump and Mr. Biden simultaneously: The Fed leader was first nominated to the central bank by President Barack Obama, then made chair by Mr. Trump and renominated as chair by Mr. Biden.Mr. DeSantis has focused much of his attention on a central bank digital currency, or C.B.D.C., which would operate like electronic cash but with backing from the federal government. The Fed has been researching both the potential uses and technical feasibility of a digital currency, but has not yet decided to issue one. Mr. Powell has made clear that the Fed “would not proceed with this without support from Congress.”The digital money that Americans use today — whether they are swiping a credit card or completing a Venmo transaction — is issued by banks. Physical cash, by contrast, comes directly from the Fed. A central bank digital currency would effectively be the digital version of a dollar bill.Many people who think the Fed should seriously consider issuing a central bank digital currency suggest that it could help improve access to banking services. Some have argued that it is important to develop the technology: America’s global competitors, including China, are researching and issuing digital money, so there is a risk of falling behind.Yet critics have worried about the privacy concerns of a centralized digital dollar. And the dollar is the most important reserve currency in the world, so any technological issues with a digital offering could be catastrophic. That is why the Fed has pledged to proceed carefully — and why the idea of issuing a digital currency in America is only in its formative research stages.Though there is no plan to issue a digital currency, Mr. DeSantis on March 20 proposed state legislation to “protect Floridians from the Biden administration’s weaponization of the financial sector through a central bank digital currency.”He then warned during an April 1 speech, with no factual basis, that Democrats wanted to use a digital currency to “impose an E.S.G. agenda,” referring to environmental and social goals like curbing consumption of fossil fuels or tightening gun control.Mr. DeSantis “is heading off any attempt to control people’s behavior through centralized digital currency,” his press secretary, Bryan Griffin, said in response to a request for comment.Mr. DeSantis’s claims echo those on right-wing social media, and they are in line with the interests of important Republican donors: Many banks and cryptocurrency firms are adamantly opposed to the idea of a central bank digital currency, worried that it would take away business.Florida, in particular, has been friendly to the digital currency industry, with lawmakers passing favorable legislation.And people with stakes in cryptocurrency are among Mr. DeSantis’s top political donors. Kenneth Griffin, the billionaire hedge fund executive and crypto skeptic turned advocate, gave $5 million to a political action committee that supported Mr. DeSantis’s 2022 re-election. Paul Tudor Jones, a billionaire investor who had significant shares in the now-bankrupt crypto trading platform FTX, contributed $850,000 to the group, according to campaign finance filings.Nor is it just Mr. DeSantis who is expressing opposition to the idea of a central bank digital currency: Prominent Republicans like Senator Ted Cruz of Texas and Representative Marjorie Taylor Greene of Georgia have joined in.Mr. Cruz and Representative Tom Emmer of Minnesota, the Republican whip, have introduced legislation to block the Fed from creating such a currency. Gov. Kristi Noem of South Dakota, another potential Republican presidential contender in 2024, recently vetoed a state bill that she claimed would have opened the door for a C.B.D.C.Some political figures are also incorrectly conflating a possible central bank digital currency with the central bank’s FedNow initiative, a separate effort to modernize America’s payment system to make transactions quicker and more efficient. A Fed spokesperson underlined that FedNow and the research into a possible digital currency were entirely different.Robert F. Kennedy Jr., a prominent figure in the anti-vaccine movement who recently announced his intention to run for president as a Democrat in 2024, wrongly conflated FedNow and the digital currency, claiming that it would “grease the slippery slope to financial slavery and political tyranny.”Tulsi Gabbard, a former Democratic presidential candidate and representative from Hawaii who is now independent, echoed warnings that a digital currency would undermine freedom, incorrectly stating that the government “has just begun implementing” such a currency.Incorrect statements about FedNow and digital currency have proliferated on social media, spread by influential political figures as well as conspiracy theorists.The Fed has tried to push back on the swirling misinformation.“The FedNow Service is neither a form of currency nor a step toward eliminating any form of payment, including cash,” the central bank posted on Twitter on Friday. Its six-tweet F.A.Q. made no mention of politics, but nevertheless read like a rare public rebuke from an institution that diligently avoids wading into political commentary.“The Federal Reserve has made no decision on issuing a central bank digital currency (CBDC) & would not do so without clear support from Congress and executive branch, ideally in the form of a specific authorizing law,” the Fed said — in a tweet that Mr. DeSantis quoted.“It is not merely ‘ideal’ that major changes in policy receive specific authorization from Congress,” Mr. DeSantis said in a reply.By Tuesday afternoon, the Fed had updated its F.A.Q. online to be even more explicit: The central bank “would only proceed with the issuance of a CBDC with an authorizing law.” More

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    Sam Bankman-Fried’s Parents Under Scrutiny in FTX Collapse

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    The FTX founder Sam Bankman-Fried’s mother and father, who teach at Stanford Law School, are under scrutiny for their connections to their son’s crypto business.At the height of its corporate power, the cryptocurrency exchange FTX convened a group of athletes and celebrities for a charity event in March at the Miami Heat’s N.B.A. arena. Local high school students competed for more than $1 million in prizes, pitching “Shark Tank”-style business ideas to a panel of judges that included David Ortiz, the former Boston Red Sox slugger, and Kevin O’Leary, an actual “Shark Tank” host.But the event’s organizer was a figure better known in academic circles — Joseph Bankman, a longtime tax professor at Stanford Law School and the father of Sam Bankman-Fried, the now-disgraced founder of FTX.Wearing a baseball cap with FTX’s logo, Mr. Bankman walked onstage to help announce the winners of two $500,000 checks. Behind the scenes, he played the role of FTX diplomat, introducing his son to the head of a Florida nonprofit organization that was helping adults in the area set up bank accounts linked to the crypto exchange’s platform. Two months later, Mr. Bankman-Fried promoted the partnership in testimony to Congress, where he was pushing crypto-friendly legislation.In the months before FTX filed for bankruptcy on Nov. 11, Mr. Bankman was a prominent cheerleader for the company, helping to shape the narrative that his son was using crypto to save the world by donating to charity and giving low-income people access to the financial system.He and his wife, the Stanford Law professor Barbara Fried, were more than just supportive parents backing their child’s business. Mr. Bankman was a paid FTX employee who traveled frequently to the Bahamas, where the exchange was based. Ms. Fried did not work for the company, but her son was among the donors in a political advocacy network that she orchestrated.Now Mr. Bankman and Ms. Fried are under scrutiny for their connections to a business that collapsed amid accusations of fraud and misuse of customer funds. No evidence has emerged linking them to the potentially criminal practices that caused the exchange to implode. But their son was arrested on Monday in the Bahamas after U.S. prosecutors filed criminal charges against him, and his fortune has dwindled to almost nothing. The charitable work that Mr. Bankman spearheaded has largely collapsed.The couple’s careers have been upended. Ms. Fried, 71, resigned last month as chairwoman of the board of a political donor network, Mind the Gap, which she had helped start to support Democratic campaigns and causes. Mr. Bankman, 67, has postponed a Stanford class he had been scheduled to teach in the winter, and he’s recruited a white-collar criminal defense lawyer to represent him. The family faces huge legal bills, and they have become the subject of gossip on Stanford’s campus.“I had a friend who said, ‘You don’t want to be seen with them,’” said Larry Kramer, a former dean of the law school and a close friend of the Bankman-Fried family. “I don’t see how this doesn’t bankrupt them.”In a statement, Risa Heller, a spokeswoman for the couple, said that Mr. Bankman worked for FTX for 11 months but that Ms. Fried had no role in the company. “Joe has spent a lot of his life trying to figure out ways to lift people up out of poverty,” Ms. Heller said. “Most of his time was spent identifying worthy health-related charities.”Mr. Bankman-Fried, 30, said in an interview that his parents “weren’t involved in any of the relevant parts” of the business. “None of them were involved in FTX balances or risk management or anything like that,” he said.Mr. Bankman-Fried said in an interview that his parents “weren’t involved in any of the relevant parts” of the business.Stefani Reynolds/BloombergLong before their son became a billionaire celebrity, Mr. Bankman and Ms. Fried were popular faculty members at Stanford, where they have taught since the late 1980s. At their home on campus, they regularly hosted Sunday dinners with friends and colleagues, which multiple attendees compared to a modern salon.A leading taxation expert, Mr. Bankman has been an outspoken advocate for simplifying the tax filing system and has testified in Congress on tax matters. He also has a degree in clinical psychology and practices as a therapist.The Aftermath of FTX’s DownfallThe sudden collapse of the crypto exchange has left the industry stunned.A Spectacular Rise and Fall: Who is Sam Bankman-Fried and how did he become the face of crypto? The Daily charted the spectacular rise and fall of the man behind FTX.Market Manipulation Inquiry: Federal prosecutors are said to be investigating whether Mr. Bankman-Fried manipulated the market for two cryptocurrencies, leading to their collapse.Congressional Testimony: The FTX founder said on Twitter that he would appear before a House committee, but he was quiet about a similar request from a Senate committee. Frantic Exchanges: Texts from a group chat that included crypto leaders from rival companies showed the chief executive of Binance, another crypto exchange, accusing Mr. Bankman-Fried of orchestrating trades to destabilize the industry.Ms. Fried, who retired this year, is an expert on the intersection of law and philosophy, and has written about effective altruism, the charitable movement embraced by Mr. Bankman-Fried that uses data to maximize the benefits of donations. In 2018, she helped start Mind the Gap, hoping to bring “Moneyball”-style analytics to political spending, people familiar with her role in the group said.The couple’s lives transformed after Mr. Bankman-Fried started FTX in 2019. He grew the company into a $32 billion business, cultivating a reputation as a hard-working do-gooder who barely slept and intended to donate his fortune to causes backed by the effective altruist movement.Mr. Bankman and Ms. Fried supported their son’s work, though Ms. Fried expressed concerns about his lifestyle. “The sleep worries me,” she said in an interview with The New York Times in May. “I just hope that it’s not exacting a high price on him.”Mr. Bankman-Fried’s business and political empire was always a family affair. The FTX founder was a prolific political donor, and he was part of a network of contributors who gave money to groups recommended by Mind the Gap, people familiar with the organization said. He also helped bankroll a nonprofit organization called Guarding Against Pandemics that was run by his 27-year-old brother, Gabe Bankman-Fried.Mr. Bankman was deeply involved in FTX. In its early days, he helped the company recruit its first lawyers. Last year, he joined FTX staff in meetings on Capitol Hill and advised his son as Mr. Bankman-Fried prepared to testify to the House Financial Services Committee, a person familiar with the matter said. FTX employees occasionally consulted him on tax-related matters, the person said.“From the start whenever I was useful, I’d lend a hand,” Mr. Bankman said on an FTX podcast in August.Mr. Bankman visited the FTX offices in the Bahamas as often as once a month, a person who saw him there said. Among the much-younger staff, he cultivated an avuncular persona, regaling employees with stories from his son’s youth, the person said. He and Ms. Fried stayed in a $16.4 million house in Old Fort Bay, a gated community in Nassau, the capital of the Bahamas; the couple’s names appear on real estate documents, according to Reuters, though Mr. Bankman-Fried has said the house was “intended to be the company’s property.”Ms. Heller, the couple’s spokeswoman, said Mr. Bankman and Ms. Fried “never intended to and never believed they had any beneficial or economic ownership in the house.”As an employee, Mr. Bankman focused on FTX’s charitable operations. He put together the Miami event, selecting the teams of high school students who competed for $1 million in FTX grants. Mr. Bankman also leveraged family connections to expand FTX’s reach. His sister, Barbara Miller, works in Florida as a political consultant and introduced him to Newton Sanon, the chief executive of OIC of South Florida, a nonprofit organization that helps people with work force development training to promote economic mobility. (Ms. Miller did not respond to a request for comment.)Mr. Sanon worked with Mr. Bankman on a financial literacy initiative for low-to-moderate-income adults enrolled in education programs. As part of the collaboration, students who did not have bank accounts could open one linked to FTX’s platform, giving them the option to spend their money on cryptocurrency. Nobody was pushed to buy digital currencies through FTX, Mr. Sanon said, but one participant chose to do so.In Washington, Mr. Bankman-Fried invoked the Florida program as he pressed for legislation to make the United States more hospitable to the crypto industry, testifying to a House committee that the initiative would help low-income people “build savings.”After FTX collapsed, however, Mr. Sanon informed Mr. Bankman that some participants in the FTX initiative may have lost funds they had stored on the platform (including money students had received as a stipend for joining the program).“They wired money in for us to be able to take care of students,” Mr. Sanon said. He declined to specify the amount that the organization received, but he said it was “substantial and very kind.”Mr. Bankman used his personal funds to cover the losses, according to his spokeswoman. Mr. Sanon said that “none of us are happy with how this played out,” but that “those folks were very good to us.”Not all of Mr. Bankman’s partners were so lucky. On Nov. 11, the day that FTX filed for bankruptcy, Mr. Bankman wrote to a Chicago nonprofit that had been promised $600,000 by FTX’s charitable arm. The money wasn’t going to materialize, Mr. Bankman explained, and he couldn’t afford to make up for the shortfall himself.“I’ll be spending substantially all of my resources on Sam’s defense,” he wrote in an email, which was obtained by The Times.Mr. Bankman-Fried’s whole family has felt the effects of his actions. Gabe Bankman-Fried resigned from Guarding Against Pandemics in November. (He did not respond to requests for comment.) Ms. Fried stepped down from Mind the Gap, which held a meeting last month to elect an interim chair and discuss how to proceed without her, people familiar with the matter said. The stress of the situation is exacting a toll: Mr. Bankman looks as if he’s aged 10 years in one month, a friend said.Mr. Bankman and Ms. Fried are part of a small group offering Mr. Bankman-Fried legal advice, according to a person familiar with the matter. The couple has also turned to the Stanford faculty for support: David Mills, a criminal law professor at Stanford and a close family friend, is part of Mr. Bankman-Fried’s legal team. Mr. Bankman has his own lawyer, the former federal prosecutor Ronald G. White.Colleagues and family acquaintances are wrestling with what to say the next time they run into Mr. Bankman and Ms. Fried. Their son has widely been compared to Bernie Madoff, the notorious fraudster who ran the largest Ponzi scheme in history.Still, many people in the family’s social circle view the situation through a sympathetic lens, according to interviews with more than a dozen friends and colleagues. They insist that Mr. Bankman and Ms. Fried couldn’t have known about any wrongdoing at FTX, while acknowledging that Mr. Bankman may have been naïve in his embrace of crypto.“It’s like a Greek tragedy,” said John Donohue, a colleague who has attended Sunday dinners at the Bankman-Fried home. “The story of flying too close to the sun, and having your wings singed.”Emily Flitter More

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    Kraken, a U.S. Crypto Exchange, Is Suspected of Violating Sanctions

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    The Treasury Department is investigating whether the crypto exchange allowed users in Iran to buy and sell digital tokens, said people with knowledge of the matter.Kraken, one of the world’s largest cryptocurrency exchanges, is under federal investigation, suspected of violating U.S. sanctions by allowing users in Iran and elsewhere to buy and sell digital tokens, according to five people affiliated with the company or with knowledge of the inquiry.The Treasury Department’s Office of Foreign Assets Control has been investigating Kraken since 2019 and is expected to impose a fine, said the people, who declined to be identified for fear of retribution from the company. Kraken would be the largest U.S. crypto firm to face an enforcement action from O.F.A.C. Sanctions against Iran, which the United States imposed in 1979, prohibit the export of goods or services to people or entities in the country.The federal government has increasingly cracked down on crypto companies, which are lightly regulated, as the market for digital currencies has grown. Tether, a stablecoin company, was fined by the Commodity Futures Trading Commission for misstatements about its reserves last year, while the Justice Department brought insider-trading charges this month against an ex-employee of Coinbase, the largest U.S. crypto exchange.Scrutiny of the industry has risen in recent months as the crypto market went into meltdown and several companies, such as Voyager Digital and Celsius Network, collapsed.Kraken, a private company valued at $11 billion that allows users to buy, sell or hold various cryptocurrencies, has previously faced regulatory actions. Last year, the C.F.T.C. levied a $1.25 million penalty against the company for a prohibited trading service.In an internal conversation about employee benefits in 2019, Jesse Powell, Kraken’s chief executive, suggested he would consider breaking the law in a wide range of situations if the advantages to the company outweighed potential penalties, according to messages seen by The New York Times. The company has also been dealing with internal conflict over issues including race and gender, which were stoked by Mr. Powell.Marco Santori, Kraken’s chief legal officer, said the company “does not comment on specific discussions with regulators.” He added, “Kraken closely monitors compliance with sanctions laws and, as a general matter, reports to regulators even potential issues.”A Treasury spokeswoman said the agency “does not confirm or comment on potential or ongoing investigations” and was committed to enforcing “sanctions that protect U.S. national security.”Sanctions are some of the most powerful tools the United States has to influence the behavior of nations it does not consider allies. But cryptocurrencies pose a threat to sanctions because the digital coins don’t flow through the traditional banking system, making the funds harder for the government to control.In October, the Treasury Department warned that cryptocurrencies “potentially reduce the efficacy of American sanctions.” It released a 30-page compliance manual that recommended cryptocurrency companies use geolocation tools to weed out customers in restricted regions.“The fact that crypto can move without a bank or intermediary means that exchanges are responsible for certain types of financial regulatory compliance,” said Hailey Lennon, a lawyer at Anderson Kill who handles regulatory issues in crypto. Kraken and the issue of sanctions surfaced in a November 2019 lawsuit by a former employee from the finance department, Nathan Peter Runyon, who accused the start-up of generating revenue from accounts in countries that were under sanctions. He said he had taken the matter to Kraken’s chief financial officer and top compliance official in early 2019, according to legal filings. (The suit was settled last year.)That same year, O.F.A.C. began investigating Kraken, focusing on the company’s accounts in Iran, the people familiar with the investigation said. Kraken’s customers have also opened accounts in Syria and Cuba, two other countries under U.S. sanctions, the people said. In 2020, O.F.A.C. fined BitGo, a digital wallet service with an office in Palo Alto, Calif., more than $98,000 in 2020 for 183 apparent sanctions violations. Last year, it fined BitPay, an Atlanta-based crypto payment processor, more than $500,000 for 2,102 apparent violations. Coinbase also disclosed in a 2021 financial filing that it had sent notices to O.F.A.C. flagging transactions that may have violated sanctions, though the agency hasn’t taken any enforcement action.Mr. Powell co-founded Kraken in 2011 and was an early proponent of Bitcoin, a digital currency that was marketed as being free of any government’s influence or regulation.In 2018, the New York attorney general’s office asked Kraken and 12 other exchanges to answer a questionnaire about their operations. Kraken refused to respond, with Mr. Powell calling New York “hostile to business” on Twitter.Kraken allows users to buy, sell or hold various cryptocurrencies.KrakenIn 2019, Mr. Powell got into an argument on Slack about parental leave at Kraken, according to messages viewed by The Times. Mr. Powell said parental leave was a burden for the company because a child “might as well be a second job, a distracting hobby or a harmful addiction” and “is something outside of work that has a negative impact on work.”The conversation soon shifted to a discussion of legal requirements. Mr. Powell said that in his “formula for everything,” it was important to consider whether it’s “worth the risk to not follow the legal requirement.” He added, “Not following the law would by default be ‘ill-advised,’ but it always has to be considered as an option.”Mr. Powell did not respond to an email requesting comment.This year, Mr. Powell was one of the loudest voices in the crypto industry resisting calls to shut down accounts in Russia after it invaded Ukraine. The United States has imposed sanctions on some individuals and businesses in Russia, but it hasn’t required crypto companies to cut off access to the country entirely.As of last month, Kraken appeared to still be servicing accounts in countries under sanctions, such as Iran, according to a spreadsheet that Mr. Powell posted to a companywide Slack channel to show where the company’s customers were. He said the data came from residence information listed on “verified accounts.”The spreadsheet said Kraken had 1,522 users with residences in Iran, 149 in Syria and 83 in Cuba, according to figures seen by The Times. The company also had more than 2.5 million users with residences in the United States and more than 500,000 in Britain. The spreadsheet was soon made unavailable to most employees. More

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    How Wall Street Escaped the Crypto Meltdown

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    Last November, in the midst of an exuberant cryptocurrency market, analysts at BNP Paribas, a French bank with a Wall Street presence, pulled together a list of 50 stocks they thought were overpriced — including many with strong links to digital assets.They nicknamed this collection the “cappuccino basket,” a nod to the frothiness of the stocks. The bank then spun those stocks into a product that essentially gave its biggest clients — pension funds, hedge funds, the managers of multibillion-dollar family fortunes and other sophisticated investors — an opportunity to bet that the assets would eventually crash.In the past month, as the froth around Bitcoin and other digital currencies dissipated, taking down some cryptocurrency companies that had sprung up to aid in their trading, the value of the cappuccino basket shrank by half.Wall Street clients of BNP who bet that would happen are sitting pretty. Those on the other side of the trade — the small investors who loaded up on overpriced crypto assets and stocks during a retail trading boom — are reeling.“The moves in crypto were coincident with retail money flooding into U.S. equities and equity options,” said Greg Boutle, who heads BNP’s U.S. equities and derivatives strategy group, which put together the trade. “There’s a big bifurcation between retail positioning and institutional positioning.” He declined to name the specific stocks that BNP clients got to bet against.In the great cryptocurrency blood bath of 2022, Wall Street is winning.“The moves in crypto were coincident with retail money flooding into U.S. equities and equity options,” said Greg Boutle of BNP Paribas.Benoit Tessier/ReutersIt’s not that financial giants didn’t want to be part of the fun. But Wall Street banks have been forced to sit it out — or, like BNP, approach crypto with ingenuity — partly because of regulatory guardrails put in place after the 2008 financial crisis. At the same time, big money managers applied sophisticated strategies to limit their direct exposure to cryptocurrencies because they recognized the risks. So when the market crashed, they contained their losses.“You hear of the stories of institutional investors dipping their toes, but it’s a very small part of their portfolios,” said Reena Aggarwal, a finance professor at Georgetown University and the director of its Psaros Center for Financial Markets and Policy.Unlike their fates in the financial crisis, when the souring of subprime mortgages backed by complex securities took down both banks and regular people, leading to a recession, the fortunes of Wall Street and Main Street have diverged more fully this time. (Bailouts eventually saved the banks last time.) Collapsing digital asset prices and struggling crypto start-ups didn’t contribute much to the recent convulsions in financial markets, and the risk of contagion is low.But if the crypto meltdown has been a footnote on Wall Street, it is a bruising event for many individual investors who poured their cash into the cryptocurrency market.“I really do worry about the retail investors who had very little funds to invest,” Ms. Aggarwal said. “They are getting clobbered.”Lured by the promise of quick returns, astronomical wealth and an industry that isn’t controlled by the financial establishment, many retail investors bought newly created digital currencies or stakes in funds that held these assets. Many were first-time traders who, stuck at home during the pandemic, also dived into meme stocks like GameStop and AMC Entertainment.They were bombarded by ads from cryptocurrency start-ups, like apps that promised investors outsize returns on their crypto holdings or funds that gave them exposure to Bitcoin. Sometimes, these investors made investment decisions that weren’t tied to value, egging on one another using online discussion platforms like Reddit.Spurred partly by the frenzy, the cryptocurrency industry blossomed quickly. At its height, the market for digital assets reached $3 trillion — a large number, although no bigger than JPMorgan Chase’s balance sheet. It sat outside the traditional financial system, an alternative space with little regulation and an anything-goes mentality.The meltdown began in May when TerraUSD, a cryptocurrency that was supposed to be pegged to the dollar, began to sink, dragged down by the collapse of another currency, Luna, to which it was algorithmically linked. The death spiral of the two coins tanked the broader digital asset market.Bitcoin, worth over $47,000 in March, fell to $19,000 on June 18. Five days earlier, a cryptocurrency lender called Celsius Networks that offered high-yield crypto savings accounts, halted withdrawals.Martin Robert has two Bitcoins stuck on Celsius Networks and is afraid he will never see them again. He had planned to cash the coins in to pay down debt.Bridget Bennett for The New York TimesThe fortunes of many small investors also began tanking.On the day that Celsius froze withdrawals, Martin Robert, a day trader in Henderson, Nev., was preparing to celebrate his 31st birthday. He had promised his wife that he would take some time off from watching the markets. Then he saw the news.“I couldn’t take my coins out fast enough,” Mr. Robert said. “We’re being held hostage.”Mr. Robert has two Bitcoins stuck on the Celsius network and is afraid he’ll never see them again. Before their price plunged, he intended to cash the Bitcoins out to pay down around $30,000 in credit card debt. He still believes that digital assets are the future, but he said some regulation was necessary to protect investors.“Pandora’s box is opened — you can’t close it,” Mr. Robert said.Beth Wheatcraft, a 35-year-old mother of three in Saginaw, Mich., who uses astrology to guide her investing decisions, said trading in crypto required a “stomach of steel.” Her digital assets are mostly in Bitcoin, Ether and Litecoin — as well as some Dogecoins that she can’t recover because they are stored on a computer with a corrupted hard drive.Ms. Wheatcraft stayed away from Celsius and other firms offering similar interest-bearing accounts, saying she saw red flags.Beth Wheatcraft, a mother of three, said trading in crypto required a “stomach of steel.”Sarah Rice for The New York TimesThe Bitcoin Trust, a fund popular with small investors, is also experiencing turmoil. Grayscale, the cryptocurrency investment firm behind the fund, pitched it as a way to invest in crypto without the risks because it alleviated the need for investors to buy Bitcoin themselves.But the fund’s structure doesn’t allow for new shares to be created or eliminated quickly enough to keep up with changes in investor demand. This became a problem when the price of Bitcoin began to sink rapidly. Investors struggling to get out drove the fund’s share price well below the price of Bitcoin.In October, Grayscale asked regulators for permission to transform the fund into an exchange-traded fund, which would make trading easier and thus align its shares more closely with the price of Bitcoin. Last Wednesday, the Securities and Exchange Commission denied the request. Grayscale quickly filed a petition challenging the decision.When the crypto market was rollicking, Wall Street banks sought ways to participate, but regulators wouldn’t allow it. Last year, the Basel Committee on Banking Supervision, which helps set capital requirements for big banks around the world, proposed giving digital tokens like Bitcoin and Ether the highest possible risk weighting. So if banks wanted to put those coins on their balance sheets, they would have to hold at least the equivalent value in cash to offset the risk.U.S. bank regulators have also warned banks to stay away from activities that would land cryptocurrencies on their balance sheets. That meant no loans collateralized by Bitcoin or other digital tokens; no market making services where banks took on the risk of ensuring that a particular market remained liquid enough for trading; and no prime brokerage services, where banks help the trading of hedge funds and other large investors, which also involves taking on risk for every trade.Banks thus ended up offering clients limited products related to crypto, allowing them an entree into this emerging world without running afoul of regulators.Goldman Sachs put Bitcoin prices on its client portals so clients could see the prices move even though they couldn’t use the bank’s services to trade them. Both Goldman and Morgan Stanley began offering some of their wealthiest individual clients the chance to buy shares of funds linked to digital assets rather than giving them ways to buy tokens directly.The headquarters of Goldman Sachs. Only a small subset of the company’s clients qualified to buy investments linked to crypto through the bank.An Rong Xu for The New York TimesOnly a small subset of Goldman’s clients qualified to buy investments linked to crypto through the bank, said Mary Athridge, a Goldman Sachs spokeswoman. Clients had to go through a “live training” session and attest to having received warnings from Goldman about the riskiness of the assets. Only then were they allowed to put money into “third party funds” that the bank had examined first.Morgan Stanley clients couldn’t put more than 2.5 percent of their total net worth into such investments, and investors could invest in only two crypto funds — including the Galaxy Bitcoin Fund — run by outside managers with traditional banking backgrounds.Still, those managers may not have escaped the crypto crash. Mike Novogratz, the chief executive of Galaxy Digital and a former Goldman banker and investor, told New York magazine last month that he had taken on too much risk. Galaxy Digital Asset Management’s total assets under management, which peaked at nearly $3.5 billion in November, fell to around $1.4 billion by the end of May, according to a recent disclosure by the firm. Had Galaxy not sold a major chunk of Luna three months before it collapsed, Mr. Novogratz would have been in worse shape.But while Mr. Novogratz, a billionaire, and the wealthy bank clients can easily survive their losses or were saved by strict regulations, retail investors had no such safeguards.Jacob Willette, a 40-year-old man in Mesa, Ariz. who works as a DoorDash delivery driver, stored his entire life savings in an account with Celsius that promised high returns. At its peak, the stored value was $120,000, Mr. Willette said.He planned to use the money to buy a house. When crypto prices started to slide, Mr. Willette looked for reassurance from Celsius executives that his money was safe. But all he found online were evasive answers from company executives as the platform struggled, eventually freezing more than $8 billion in deposits.Celsius representatives did not respond to requests for comment.“I trusted these people,” Mr. Willette said. “I just don’t see how what they did is not illegal.” More

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    Inside Kraken’s Culture War Stoked by Its C.E.O.

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    Jesse Powell, who leads the crypto exchange Kraken, has challenged the use of preferred pronouns, debated who can use racial slurs and called American women “brainwashed.”Jesse Powell, a founder and the chief executive of Kraken, one of the world’s largest cryptocurrency exchanges, recently asked his employees, “If you can identify as a sex, can you identify as a race or ethnicity?”He also questioned their use of preferred pronouns and led a discussion about “who can refer to another person as the N word.”And he told workers that questions about women’s intelligence and risk appetite compared with men’s were “not as settled as one might have initially thought.”In the process, Mr. Powell, a 41-year-old Bitcoin pioneer, ignited a culture war among his more than 3,000 workers, according to interviews with five Kraken employees, as well as internal documents, videos and chat logs reviewed by The New York Times. Some workers have openly challenged the chief executive for what they see as his “hurtful” comments. Others have accused him of fostering a hateful workplace and damaging their mental health. Dozens are considering quitting, said the employees, who did not want to speak publicly for fear of retaliation.Corporate culture wars have abounded during the coronavirus pandemic as remote work, inequity and diversity have become central issues at workplaces. At Meta, which owns Facebook, restive employees have agitated over racial justice. At Netflix, employees protested the company’s support for the comedian Dave Chappelle after he aired a special that was criticized as transphobic.But rarely has such angst been actively stoked by the top boss. And even in the male-dominated cryptocurrency industry, which is known for a libertarian philosophy that promotes freewheeling speech, Mr. Powell has taken that ethos to an extreme.His boundary pushing comes amid a deepening crypto downturn. On Tuesday, Coinbase, one of Kraken’s main competitors, said it was laying off 18 percent of its employees, following job cuts at Gemini and Crypto.com, two other crypto exchanges. Kraken — which is valued at $11 billion, according to PitchBook — is also grappling with the turbulence in the crypto market, as the price of Bitcoin has plunged to its lowest point since 2020.Mr. Powell’s culture crusade, which has largely played out on Kraken’s Slack channels, may be part of a wider effort to push out workers who don’t believe in the same values as the crypto industry is retrenching, the employees said.This month, Mr. Powell unveiled a 31-page culture document outlining Kraken’s “libertarian philosophical values” and commitment to “diversity of thought,” and told employees in a meeting that he did not believe they should choose their own pronouns. The document and a recording of the meeting were obtained by The Times.Those who disagreed could quit, Mr. Powell said, and opt into a program that would provide four months of pay if they affirmed that they would never work at Kraken again. Employees have until Monday to decide if they want to take part.On Monday, Christina Yee, a Kraken executive, gave those on the fence a nudge, writing in a Slack post that the “C.E.O., company, and culture are not going to change in a meaningful way.”“If someone strongly dislikes or hates working here or thinks those here are hateful or have poor character,” she said, “work somewhere that doesn’t disgust you.”After The Times contacted Kraken about its internal conversations, the company publicly posted an edited version of its culture document on Tuesday. In a statement, Alex Rapoport, a spokeswoman, said Kraken does not tolerate “inappropriate discussions.” She added that as the company more than doubled its work force in recent years, “we felt the time was right to reinforce our mission and our values.”Mr. Powell and Ms. Yee did not respond to requests for comment. In a Twitter thread on Wednesday in anticipation of this article, Mr. Powell said that “about 20 people” were not on board with Kraken’s culture and that even though teams should have more input, he was “way more studied on policy topics.”“People get triggered by everything and can’t conform to basic rules of honest debate,” he wrote. “Back to dictatorship.”The conflict at Kraken shows the difficulty of translating crypto’s political ideologies to a modern workplace, said Finn Brunton, a technology studies professor at the University of California, Davis, who wrote a book in 2019 about the history of digital currencies. Many early Bitcoin proponents championed freedom of ideas and disdained government intrusion; more recently, some have rejected identity politics and calls for political correctness.“A lot of the big whales and big representatives now — they’re trying to bury that history,” Mr. Brunton said. “The people who are left who really hold to that are feeling more embattled.”Mr. Powell, who attended California State University, Sacramento, started an online store in 2001 called Lewt, which sold virtual amulets and potions to gamers. A decade later, he embraced Bitcoin as an alternative to government-backed money.In 2011, Mr. Powell worked on Mt. Gox, one of the first crypto exchanges, helping the company navigate a security issue. (Mt. Gox collapsed in 2014.)Mr. Powell founded Kraken later in 2011 with Thanh Luu, who sits on the company’s board. The start-up operates a crypto exchange where investors can trade digital assets. Kraken had its headquarters in San Francisco but is now a largely remote operation. It has raised funds from investors like Hummingbird Ventures and Tribe Capital.As cryptocurrency prices skyrocketed in recent years, Kraken became the second-largest crypto exchange in the United States behind Coinbase, according to CoinMarketCap, an industry data tracker. Mr. Powell said last year that he was planning to take the company public.He also insisted that some workers subscribe to Bitcoin’s philosophical underpinnings. “We have this ideological purity test,” Mr. Powell said about the company’s hiring process on a 2018 crypto podcast. “A test of whether you’re kind of aligned with the vision of Bitcoin and crypto.”In 2019, former Kraken employees posted scathing comments about the company on Glassdoor, a website where workers write anonymous reviews of their employers.“Kraken is the perfect allegory for any utopian government ideal,” one reviewer wrote. “Great ideas in theory but in practice they end up very controlling, negative and mistrustful.”In response, Kraken’s parent company sued the anonymous reviewers and tried to force Glassdoor to reveal their identities. A court ordered Glassdoor to turn over some names.On Glassdoor, Mr. Powell has a 96 percent approval rating. The site adds, “This employer has taken legal action against reviewers.”Kraken is one of the world’s largest cryptocurrency exchanges.KrakenAt Kraken, Mr. Powell is part of a Slack group called trolling-999plus, according to messages viewed by The Times. The group is labeled “… and you thought 4chan was full of trolls,” referring to the anonymous online message board known for hate speech and radicalizing some of the gunmen behind mass shootings.In April, a Kraken employee posted a video internally on a different Slack group that set off the latest fracas. The video featured two women who said they preferred $100 in cash over a Bitcoin, which at the time cost more than $40,000. “But this is how female brain works,” the employee commented.Mr. Powell chimed in. He said the debate over women’s mental abilities was unsettled. “Most American ladies have been brainwashed in modern times,” he added on Slack, in an exchange viewed by The Times.His comments fueled a furor.“For the person we look to for leadership and advocacy to joke about us being brainwashed in this context or make light of this situation is hurtful,” wrote one female employee.“It isn’t heartening to see your gender’s minds, capabilities, and preferences discussed like this,” another wrote. “It’s incredibly othering and harmful to women.”“Being offended is not being harmed,” Mr. Powell responded. “A discussion about science, biology, attempting to determine facts of the world cannot be harmful.”At a companywide meeting on June 1, Mr. Powell was discussing Kraken’s global footprint, with workers in 70 countries, when he veered to the topic of preferred pronouns. It was time for Kraken to “control the language,” he said on the video call.“It’s just not practical to allow 3,000 people to customize their pronouns,” he said.That same day, he invited employees to join him in a Slack channel called “debate-pronouns” where he suggested that people use pronouns based not on their gender identity but their sex at birth, according to conversations seen by The Times. He shut down replies to the thread after it became contentious.Mr. Powell reopened discussion on Slack the next day to ask why people couldn’t choose their race or ethnicity. He later said the conversation was about who could use the N-word, which he noted wasn’t a slur when used affectionately.Mr. Powell also circulated the culture document, titled “Kraken Culture Explained.”“We Don’t Forbid Offensiveness,” read one section. Another said employees should show “tolerance for diverse thinking”; refrain from labeling comments as “toxic, hateful, racist, x-phobic, unhelpful, etc.”; and “avoid censoring others.”It also explained that the company had eschewed vaccine requirements in the name of “Krakenite bodily autonomy.” In a section titled “self-defense,” it said that “law-abiding citizens should be able to arm themselves.”“You may need to regularly consider these crypto and libertarian values when making work decisions,” it said.In the edited version of the document that Kraken publicly posted, mentions of Covid-19 vaccinations and the company’s belief in letting people arm themselves were omitted.Those who disagreed with the document were encouraged to depart. At the June 1 meeting, Mr. Powell unveiled the “Jet Ski Program,” which the company has labeled a “recommitment” to its core values. Anyone who felt uncomfortable had two weeks to leave, with four months’ pay.“If you want to leave Kraken,” read a memo about the program, “we want it to feel like you are hopping on a jet ski and heading happily to your next adventure!”Kitty Bennett More

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    How a Trash-Talking Crypto Bro Caused a $40 Billion Crash

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    Do Kwon, a South Korean entrepreneur, hyped the Luna and TerraUSD cryptocurrencies. Their failures have devastated some traders, though not the investment firms that cashed out early.Do Kwon, a trash-talking entrepreneur from South Korea, called the cryptocurrency he created in 2018 “my greatest invention.” In countless tweets and interviews, he trumpeted the world-changing potential of the currency, Luna, rallying a band of investors and supporters he proudly referred to as “Lunatics.”Mr. Kwon’s company, Terraform Labs, raised more than $200 million from investment firms such as Lightspeed Venture Partners and Galaxy Digital to fund crypto projects built with the currency, even as critics questioned its technological underpinnings. Luna’s total value ballooned to more than $40 billion, creating a frenzy of excitement that swept up day traders and start-up founders, as well as wealthy investors.Mr. Kwon dismissed concerns with a taunt: “I don’t debate the poor.”But last week, Luna and another currency that Mr. Kwon developed, TerraUSD, suffered a spectacular collapse. Their meltdowns had a domino effect on the rest of the cryptocurrency market, tanking the price of Bitcoin and accelerating the loss of $300 billion in value across the crypto economy. This week, the price of Luna remained close to zero, while TerraUSD continued to slide.The downfall of Luna and TerraUSD offers a case study in crypto hype and who is left holding the bag when it all comes crashing down. Mr. Kwon’s rise was enabled by respected financiers who were willing to back highly speculative financial products. Some of those investors sold their Luna and TerraUSD coins early, reaping substantial profits, while retail traders now grapple with devastating losses.Pantera Capital, a hedge fund that invested in Mr. Kwon’s efforts, made a profit of about 100 times its initial investment, after selling roughly 80 percent of its holdings of Luna over the last year, said Paul Veradittakit, an investor at the firm.Pantera turned $1.7 million into around $170 million. The recent crash was “unfortunate,” Mr. Veradittakit said. “A lot of retail investors have lost money. I’m sure a lot of institutional investors have, too.”Mr. Kwon did not respond to messages. Most of his other investors declined to comment.Kathleen Breitman, a founder of the crypto platform Tezos, said the rise and fall of Luna and TerraUSD were driven by the irresponsible behavior of the institutions backing Mr. Kwon. “You’ve seen a bunch of people trying to trade in their reputations to make quick bucks,” she said. Now, she said, “they’re trying to console people who are seeing their life savings slip out from underneath them. There’s no defense for that.”Mr. Kwon, a 30-year-old graduate of Stanford University, founded Terraform Labs in 2018 after stints as a software engineer at Microsoft and Apple. (He had a partner, Daniel Shin, who later left the company.) His company claimed it was creating a “modern financial system” in which users could conduct complicated transactions without relying on banks or other middlemen.Mr. Shin and Mr. Kwon began marketing the Luna currency in 2018. In 2020, Terraform started offering TerraUSD, which is known as a stablecoin, a type of cryptocurrency designed to serve as a reliable means of exchange. Stablecoins are typically pegged to a stable asset like the U.S. dollar and are not supposed to fluctuate in value like other cryptocurrencies. Traders often use stablecoins to buy and sell other riskier assets.But TerraUSD was risky even by the standards of experimental crypto technology. Unlike the popular stablecoin Tether, it was not backed by cash, treasuries or other traditional assets. Instead, it derived its supposed stability from algorithms that linked its value to Luna. Mr. Kwon used the two related coins as the basis for more elaborate borrowing and lending projects in the murky world of decentralized finance, or DeFi.Read More on the World of CryptocurrenciesA Perfect Storm: A steep sell-off that gained momentum this week is illustrating the risks of cryptocurrencies. Crypto Emperor: Sam Bankman-Fried, a studiously disheveled billionaire, is hoping to put a new face on the still-chaotic world of digital assets.Crypto Critic: The actor Ben McKenzie, best known for “The O.C.,” has become an outspoken skeptic of digital currencies. Who’s listening?Fund-raising Efforts: Activists and nonprofits are considering digital currencies as a way to raise funds for causes like abortion rights. Can it work?From the beginning, crypto experts were skeptical that an algorithm would keep Mr. Kwon’s twin cryptocurrencies stable. In 2018, a white paper outlining the stablecoin proposal reached the desk of Cyrus Younessi, an analyst for the crypto investment firm Scalar Capital. Mr. Younessi sent a note to his boss, explaining that the project could enter a “death spiral” in which a crash in Luna’s price would bring the stablecoin down with it.“I was like, ‘This is crazy,’” he said in an interview. “This obviously doesn’t work.”As Luna caught on, the naysayers grew louder. Charles Cascarilla, a founder of Paxos, a blockchain company that offers a competing stablecoin, cast doubt on Luna’s underlying technology in an interview last year. (Mr. Kwon responded by taunting him on Twitter: “Wtf is Paxos.”) Kevin Zhou, a hedge fund manager, repeatedly predicted that the two currencies would crash.But venture investment came pouring in anyway to fund projects built on Luna’s underlying technology, like services for people to exchange cryptocurrencies or borrow and lend TerraUSD. Investors including Arrington Capital and Coinbase Ventures shoveled in more than $200 million between 2018 and 2021, according to PitchBook, which tracks funding.In April, Luna’s price rose to a peak of $116 from less than $1 in early 2021, minting a generation of crypto millionaires. A community of retail traders formed around the coin, hailing Mr. Kwon as a cult hero. Mike Novogratz, chief executive of Galaxy Digital, which invested in Terraform Labs, announced his support by getting a Luna-themed tattoo.Mr. Kwon, who operates out of South Korea and Singapore, gloated on social media. In April, he announced that he had named his newborn daughter Luna, tweeting, “My dearest creation named after my greatest invention.”“It’s the cult of personality — the bombastic, arrogant, Do Kwon attitude — that sucks people in,” said Brad Nickel, who hosts the cryptocurrency podcast “Mission: DeFi.”Earlier this year, a nonprofit that Mr. Kwon also runs sold $1 billion of Luna to investors, using the proceeds to buy a stockpile of Bitcoin — a reserve designed to keep the price of TerraUSD stable if the markets ever dipped.Around the same time, some of the venture capital firms that had backed Mr. Kwon started to have concerns. Hack VC, a venture firm focused on crypto, sold its Luna tokens in December, partly because “we felt the market was due for a broader pullback,” said Ed Roman, a managing director at the firm.Martin Baumann, a founder of the Hong Kong-based venture firm CMCC Global, said his company sold its holdings in March, at about $100 per coin. “We had gotten increasing concerns,” he said in an email, “both from tech side as well as regulatory side.” (CMCC and Hack VC declined to comment on their profits.)Even Mr. Kwon alluded to the possibility of a crypto collapse, publicly joking that some crypto ventures might ultimately go under. He said he found it “entertaining” to watch companies crumble.Last week, falling crypto prices and challenging economic trends combined to create a panic in the markets. The price of Luna fell to nearly zero. As critics had predicted, the price of TerraUSD crashed in tandem, dropping from its $1 peg to as low as 11 cents this week. In a matter of days, the crypto ecosystem Mr. Kwon had built was essentially worthless.“I am heartbroken about the pain my invention has brought on all of you,” he tweeted last week.Some of Mr. Kwon’s major investors have lost money. Changpeng Zhao, chief executive of the crypto exchange Binance, which invested in Terraform Labs, said his firm had bought $3 million of Luna, which grew to a peak value of $1.6 billion. But Binance never sold its tokens. Its Luna holdings are currently worth less than $3,000.That loss is still only a drop in the bucket for a company as large as Binance, whose U.S. arm is valued at $4.5 billion.Expand Your Cryptocurrency VocabularyCard 1 of 9A glossary. More

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    Cryptocurrencies Melt Down in a ‘Perfect Storm’ of Fear and Panic

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    A steep sell-off that gained momentum this week starkly illustrated the risks of the experimental and unregulated digital currencies.SAN FRANCISCO — The price of Bitcoin plunged to its lowest point since 2020. Coinbase, the large cryptocurrency exchange, tanked in value. A cryptocurrency that promoted itself as a stable means of exchange collapsed. And more than $300 billion was wiped out by a crash in cryptocurrency prices since Monday.The crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies. Even as celebrities such as Kim Kardashian and tech moguls like Elon Musk have talked up crypto, the accelerating declines of virtual currencies like Bitcoin and Ether show that, in some cases, two years of financial gains can disappear overnight.The moment of panic amounted to the worst reset in cryptocurrencies since Bitcoin plummeted 80 percent in 2018. But this time, the falling prices have broader impact because more people and institutions hold the currencies. Critics said the collapse was long overdue, while some traders compared the alarm and fear to the start of the 2008 financial crisis.“This is like the perfect storm,” said Dan Dolev, an analyst who covers crypto companies and financial technology at the Mizuho Group.During the coronavirus pandemic, people have flooded into virtual currencies, with 16 percent of Americans now owning some, up from 1 percent in 2015, according to a Pew Research Center survey. Big banks like Northern Trust and Bank of America also streamed in, along with hedge funds, some using debt to further juice their crypto bets.Early investors are still probably in a comfortable position. But the rapid declines this week have been especially acute for investors who bought cryptocurrencies when prices surged last year.The fall in cryptocurrencies is part of a broader pullback from risky assets, spurred by rising interest rates, inflation and economic uncertainty caused by Russia’s invasion of Ukraine. Those factors have compounded a so-called pandemic hangover that began as life started returning to normal in the United States, hurting the stock prices of companies like Zoom and Netflix that thrived during lockdowns.But crypto’s decline is more severe than the broader plunge in the stock market. While the S&P 500 is down 18 percent so far this year, Bitcoin’s price has dropped 40 percent in the same period. In the last five days alone, Bitcoin has tumbled 20 percent, compared to a 5 percent decline in the S&P 500.Crypto Experiences a Broad Collapse1-year change in the value of cryptocurrencies

    Prices are through 6 p.m. Eastern time on May 12.Source: CoinMarketCapBy The New York TimesHow long crypto’s collapse might last is unclear. Cryptocurrency prices have typically rebounded from major losses, though in some cases it took several years to reach new heights.“It’s hard to say, ‘Is this Lehman Brothers?’” said Charles Cascarilla, a founder of the blockchain company Paxos, referring to the financial services firm that went bankrupt at the start of the 2008 financial crisis. “We’re going to need some more time to figure it out. You can’t respond at this type of speed.”The origins of cryptocurrencies trace back to 2008, when a shadowy figure calling himself Satoshi Nakamoto created Bitcoin. The virtual currency was portrayed as a decentralized alternative to the traditional financial system. Rather than relying on gatekeepers like banks to facilitate commerce, Bitcoin proponents preferred to conduct transactions among themselves, recording each one on a shared ledger called a blockchain.Prominent tech leaders including Mr. Musk, Jack Dorsey, a founder of Twitter, and Marc Andreessen, an investor, embraced the technology as it grew from a novel curiosity into a cultlike movement. The value of cryptocurrencies exploded, minting a new class of crypto billionaires. Other forms of cryptocurrency, including Ether and Dogecoin, captured the public’s attention, particularly in the pandemic, when excess cash in the financial system led people to day trade for entertainment.Cryptocurrency prices reached a peak late last year and have since slid as fears over the economy grew. But the meltdown gathered momentum this week when TerraUSD, a stablecoin, imploded. Stablecoins, which are meant to be a more reliable means of exchange, are typically pegged to a stable asset such as the U.S. dollar and are intended not to fluctuate in value. Many traders use them to buy other cryptocurrencies.TerraUSD had the backing of credible venture capital firms, including Arrington Capital and Lightspeed Venture Partners, which invested tens of millions of dollars to fund crypto projects built on the currency. That gave “a false sense of security to people who might not otherwise know about these things,” said Kathleen Breitman, one of the founders of Tezos, a crypto platform.But TerraUSD was not backed by cash, treasuries or other traditional assets. Instead, it derived its supposed stability from algorithms that linked its value to a sister cryptocurrency called Luna.This week, Luna lost almost its entire value. That immediately had a knock-on effect on TerraUSD, which fell to a low of 23 cents on Wednesday. As investors panicked, Tether, the most popular stablecoin and a linchpin of crypto trading, also wavered from its own $1 peg. Tether fell as low as $0.95 before recovering. (Tether is backed by cash and other traditional assets.)The volatility quickly drew attention in Washington, where stablecoins have been on regulators’ radar. Last fall, the Treasury Department issued a report calling on Congress to devise rules for the stablecoin ecosystem.“We really need a regulatory framework,” Treasury Secretary Janet Yellen said at a congressional hearing on Thursday. “In the last couple of days, we’ve had a real-life demonstration of the risks.”Stablecoins “present the same kinds of risks that we have known for centuries in connection with bank runs,” she added.Workers installing a cryptocurrency mining data center in Medley, Fla.Rose Marie Cromwell for The New York TimesOther parts of the crypto ecosystem soured at the same time. On Tuesday, Coinbase, one of the largest cryptocurrency exchanges, reported a $430 million quarterly loss and said it had lost more than two million active users. The company’s stock price has plunged 82 percent since its triumphant market debut in April 2021.A Guide to CryptocurrencyCard 1 of 9A glossary. More