‘All of this is fraud,’ BitBoy Crypto founder says

BitBoy Crypto Founder Ben Armstrong joins Yahoo Finance Live to discuss the FTX bankruptcy, fraud in the crypto space, and the role of SEC Chair Gary Gensler in regulating the space.

Video Transcript

[AUDIO LOGO]

BRAD SMITH: While we all bore witness to the collapse of FTX last week, our next guest almost predicted what was going to happen days before. On October 29, he tweeted, “If you don’t close your FTX account today and get your funds off that exchange ASAP, I’m sorry, but you are the definition of low IQ and deserve what’s going to happen to you.” And two weeks later, after everything unraveled, FTX CEO Sam Bankman-Fried told his clients he was, quote, “really sorry we ended up here.”

Let’s bring in BitBoy Crypto founder, Ben Armstrong. Ben, what information led you to conclude what was happening ahead of time?

BEN ARMSTRONG: Yeah, so it’s just very interesting the way things unfolded. I was just kind of in the right place at the right time is how things shook out. Basically, I have a bill we’re trying to get approved in Congress. We’re still trying to get some funding for it so we can make it public. And we reached out to FTX for funding because we thought maybe their ideals aligned with ours.

And basically, through a long series of events, it went through SBF to Tim Harrison to Wetjen, the former CFTC guy that was their policy head. And they actually tried to steal one of our political backers and actually communicated that they were trying to do a federal bit license. So like, that’s kind of weird. Federal bit license, the worst legislation ever in the history of crypto, totally benefit centralized exchanges, gets rid of decentralization, gets rid of peer-to-peer– you know, peer-to-peer transactions, because you won’t have a license, which a license costs hundreds of thousands of dollars to get, of course.

And so I started saying, man, there’s got to be something to this. Well, lo and behold, about four weeks after I came out with what they were doing, suddenly, he comes out with this manifesto, SBF, leading to the idea of licensure. And suddenly, people started listening. Oh my gosh, we think Ben actually knows what he’s talking about. And all of his enemies, all the enemies that SBF has had over the last, you know, two years started sending me messages.

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And we just started learning more and more and more that they had been doing on the backside to completely destroy projects like ICP, projects like Refinance, projects like New Genesis, projects like Aptos, projects like Casper. These were all projects that FTX and Alameda specifically set out to destroy by making them promises to list on the exchange and then shorting them to zero by, like Michael Saylor was talking about, counterfeiting coins on the exchange to control the supply.

So once we started digging into this and realizing what was going on in the back end, we tried to warn everybody. Millions of dollars left FTX. Thousands of accounts were closed because of the message we were putting out. And that tweet looks a little callous now, knowing everything that’s happened. And we– certainly, our heart goes out to people who lost money. And certainly, people don’t deserve to lose money. But anybody who heard the message that we were putting out and ignored it, you know, like, unfortunately, I just hate to tell you, I wish you would have listened.

AKIKO FUJITA: I mean Ben, you know, the question since last week has really been, you know, how much of this was intentional, misleading fraud? How much of this was FTX–

BEN ARMSTRONG: All of it.

AKIKO FUJITA: –Sam Bankman-Fried getting over in his head. It sounds like you think it’s the former.

BEN ARMSTRONG: 100%. All of this is fraud from the very beginning. If you really start looking into Dan Friedberg, this is the guy to look at. This was the general counsel of FTX. Literally, he is caught on a recording discussing the counterfeiting of tokens.

Now, how did Dan Friedberg even get to be the general counsel of FTX? It’s insane. If you look back to the very beginnings of the 2000s when online poker first blew up, the biggest poker scandal in history was the ultimate bet God Mode scandal, which players could actually see– they used the software to see the cards of other players. Guess who was the architect of all the shell companies and all of everything that involved getting promoters, the millions of dollars that were stolen? Who’s in charge of the whole thing? Dan Friedberg.

How did he not lose his license after that? No one knows. Nobody knew that this was the guy that was, you know, the general counsel for Sam Bankman-Fried. This shell game was set up so early on that it had the back end to where Alameda could go in and borrow customer funds whenever they wanted to. It only became a problem when prices started going down. And people– they started getting liquidated in certain places and could not replace the assets.

This has been a scam from day one. SBF never once had any good intentions. And I would say– there are people saying, oh, they feel sorry for him. No, no, no. He showed no mercy to the projects that they set out to destroy that had spent years and years building tech, years and years getting things ready for them to have a successful launch. And he destroyed them and shorted them to zero. And then he would pay them hush money so they never would say anything.

BRIAN SOZZI: Ben, what’s the next sure drop here?

BEN ARMSTRONG: Well, the next sure drop is over the next month, there’s going to be a big story coming out basically exposing the entire industry. And look, 95% of what we’ve seen in crypto over the last two years has been completely fake.

The market making in this business is the real dirty secret that people don’t want to acknowledge. When coins sign up to get listed on the exchange, they agree to a package. And we know this from contracts, contracts we’ve seen from FTX to where they’re signing up for a market maker.

What is a market maker? It’s someone that comes in and guarantees to keep the coin between a certain range. It will not fall beneath this point into irrelevancy, because the market maker will keep it propped up. Well, that’s fraud. That’s wash trading. That’s faking volume. And that’s what almost every single project has been either knowingly or unknowingly guilty of when they listed on exchanges like FTX.

And of course, plenty of other exchanges use it as well. I think Michael Saylor. I love Michael Saylor. He’s– you know, we disagree on a lot of points, but he’s been on my show. He’s certainly somebody I admire and look up to. What he’s talking about about the regulated exchanges, this is so crucial.

Gary Gensler has completely screwed everyone in crypto. Everyone who lost any money in Celsius, Voyager, BlockFi, FTX, you lost it because of Gary Gensler. He his lack of creating clarity and regulation in the space is exactly what has led us to all these offshore companies that do not operate in the United States and are not regulated.

His willful, you know, lack of– you know, dereliction of duty is what’s led everyone to this point. We want regulated exchanges. But we can’t get regulation. We can’t get clarity. You can’t do everything by enforcement. And Gary Gensler is the most negligent person in the entire space. And I blame him more than I even blame SBF.