FTX, Cryptomania and Fake Wealth
In October 2021, Sam Bankman-Fried (SBF) was on the cover of Forbes magazine. Forbes estimated his net worth at $26.5 billion, making him one of the richest people in the United States, despite being only 29 years old. By October 2022, his wealth had declined considerably, due to the crypto-crash of the preceding year, which saw bitcoin fall from over $60K to less than $20K. However, his net worth was still over $10 billion. On November 8, 2022, his wealth fell to less than one billion, due to the collapse of his company FTX and its associated tokens. By November 11, his net worth was estimated to be zero. Of course, this “wealth” never really existed. It was just an illusion. That illusion was created by two things: hype and the fallacy of composition. The fallacy of composition is the false assumption that what is true of the parts is also true of the whole. A single unit of an asset class has a market value. The asset class as a whole, or any large amount of it, does not have a