Crypto evangelist Mark Carnegie caught out

Mr Carnegie moved his business to Singapore a year ago after Australian regulators rebuffed his attempts to list a crypto fund on the Australian Securities Exchange.

He became one of the leading advocates for blockchain technologies, which he predicted would be one of the most important economic advances in history. Last year he and business partner Sergei Sergienko bought the naming rights to a fly discovered in Papua New Guinea. They called it Chrysosoma bitcoin.

He also advised investors to limit cryptocurrency investments to less than 5 per cent of their portfolios and said prices would crash at some point. Bitcoin is down 63 per cent to $24,137 this year.

Kama Sutra

Mr Carnegie said he had not met FTX’s 30-year-old founder, Sam Bankman-Fried, but many crypto entrepreneurs did not understand economic history and assumed they had created financial instruments that had not been used before.

He likened many crypto entrepreneurs to college kids who think they “know how to write the Kama Sutra” after their first sexual experience.

Mr Bankman-Fried was in the Bahamas, where his business is located, with his father, a Stanford University law lecturer, “hunkering down with cops and federal regulators” at the weekend, the New York Post reported.

US media outlets have reported that hackers stole $US600 million ($895 million) from FTX customers and $US10 billion of customer funds was transferred from FTX to a related company, Alameda Research, which is run by Mr Bankman-Fried’s girlfriend, Caroline Ellison.

Long-term consequences

“This guy has had media capture, celebrity capture, regulatory capture,” Mr Carnegie said. “He has gone 10 for 10 in making everyone embarrassed in any involvement in the space.”

FTX had $US900 million invested in Solana, a blockchain currency that has fallen 24 per cent in the past two days.

Mr Carnegie said it was impossible to know if other similar investments had been stolen, but he believed some had. He said the thefts, which had not been proven in court, had stimulated crypto prices by creating extra financial liquidity.

“We’re 60 to 70 per cent done in terms of the blow-up,” he said. “When markets are flying and people are stealing money there is embezzlement going on. You think the money is still in your bank account but it’s not. The wealth effect of the money is doubled.”

The long-term consequences of FTX’s failure on the industry is unclear. Sceptics say the crash demonstrates that blockchain-related investments have little or no use other than as speculative assets. Others say the crash will ultimately help good blockchain products develop by reducing speculation and corruption.

Mr Carnegie said the industry would have to change how it operated, and the products it created, in the same way what was known as the junk-bond industry evolved after a US investment bank, Drexel Burnham Lambert, went bankrupt trading the high-risk bonds in the 1980s.

Mr Carnegie said the cryptocurrency market was in a similar situation to junk bonds then.

“They had to reimagine how it worked,” he said. “High yields never looked the same after Drexel went pop. What comes out of this is unimaginable.”

Now known as high-yield corporate debt, the market is worth about $2 trillion in the US.

Last September Mr Carnegie proposed a bet with fund manager Con Michalakis, now the deputy chief investment officer of the Hostplus superannuation fund, about the future of crypto prices. The loser agreed to a naked appearance at an Adelaide shopping mall.

On Twitter last week Mr Michalakis wrote to Mr Carnegie: “Please send dates for your Adelaide fun run!”

Mr Carnegie said he had lost and intended to honour the bet. “I will have to run with my bare arse out down the Rundle Mall,” he said.