Crypto Is Not Too Big To Fail, Even With Help From FTX

Turtles all the way down” is a handy phrase for describing how the human mind creatively fills in holes of logic. It allegedly springs from one person’s attempt to justify to the philosopher Bertrand Russell her belief that the world was floating on a giant turtle by imagining another turtle underneath it, and then another, to infinity.

The image fits the world of cryptocurrencies, where a recent tumble in the price of Bitcoin, Ether and other tokens has unraveled a complex chain of stablecoins, lending platforms and trading firms that are blowing up simultaneously. What was once a virtuous circle of locked-up tokens yielding interest that would be reinvested ad infinitum is now a vicious one, as margin calls and liquidations take place at algorithmic speed. Every turtle seems to hide another.

The next phase features bailouts, as the big players atop the ecosystem of crypto-speculation — billionaire-run exchanges — step in to try to stem panic and restore trust. Sam Bankman-Fried, co-founder of FTX Trading Ltd., has extended a $250 million credit line to lending platform BlockFi Inc. He’s made an additional $200 million of credit and a separate 15,000-Bitcoin revolving facility available to Voyager Digital Ltd., a Toronto-based crypto broker that’s owed $660 million by troubled digital-asset hedge fund Three Arrows Capital Ltd. And Changpeng Zhao, the head of rival digital exchange Binance, spoke of a "responsibility" to help struggling crypto firms after effectively compensating victims of crypto game Axie Infinity's hack earlier this year.