In This Newsletter
US Africa Summit
Household Crypto Usage
Takeaways from FTX’s Collapse
US Africa Summit
This December, the Milken Institute FinTech program participated in the 2023 US–Africa Leadership Summit. The FinTech team attended the Semafor Africa Summit, where African and American policymakers, investors, innovators, and civil society leaders discussed regional and global economic priorities, technology, health, climate, and sustainable progress across the continent. One overarching theme of the event was Africa’s need for foreign capital to finance private and public projects.
H.E. Cina Lawson, Togo’s minister of digital economy and digital transformation, discussed the huge strides Africa has made in internet connectivity over the past decade and the need for additional investment in fiber optic infrastructure. She emphasized that only so much economic growth can be achieved with mobile data networks. Heavier industry and global enterprises will demand fiber optic internet before they start investing in Africa at scale.
Panelists discussed the role Chinese investment has played in African infrastructure over the past 10 years. Paul Nantulya, from the Africa Center for Strategic Studies, discussed the sometimes-predatory nature of Chinese investment in Africa, which has increased the continent’s debt burdens. Paulo Gomes, chairman of the Orango Investment Group, told the audience that his company would approach future public partnerships with China with experts at the negotiating table. Reuters reported on the US and Chinese competition over Africa that underpinned the summit.
David Rubenstein addressed the conference on the need to reassess how American investors conceive of risk in the African market. Rubenstein made the point that the United States was an emerging market 150 years ago, and he was hopeful that Africa could experience a similar success to the US as private and public actors find innovative ways to deploy capital to the continent.
As part of the week’s activities, the Milken Institute hosted a successful roundtable with two African heads of state, President Paul Biya of Cameroon and President Nana Akufo-Addo of Ghana.
Household Crypto Usage
Earlier this month, the JPMorgan Chase Institute published its report on The Dynamics and Demographics of U.S. Household Crypto-Asset Use. The report used anonymous data from JPMorgan’s over 5 million active checking accounts to analyze crypto currency usage in the United States.
The report found that most crypto users made their first transactions during spikes in crypto-asset prices. Most new crypto users in the report’s sample, from 2015 to 2022, made their first transactions in a set of days that coincided with a trailing monthly price change exceeding 25 percent. These data suggest that much of crypto’s adoption has been driven by speculative forces and fear of missing out. The report also found that most individuals who transferred money into crypto accounts did so when crypto-asset prices were significantly higher than recent levels, and those with lower incomes likely made purchases at elevated prices relative to higher earners.
The study found 600,000 active checking accounts in the sample with transfers to or from a crypto account. The study disaggregated these accounts by race, income, and gender. In this demographic breakdown, the report found broader and deeper crypto use by men, Asian individuals, and younger individuals with higher incomes.
Crypto holdings for most individuals are relatively small, suggesting American consumers have limited exposure to the broad price declines in crypto this year. Median flows into crypto accounts were equal to less than one week’s worth of take-home pay. However, almost 15 percent of users have net transfers of over one month’s worth of pay to crypto accounts. These consumers were the most exposed to this year’s downside volatility.
Takeaways from FTX’s Collapse
Sam Bankman-Fried’s crypto empire dramatically collapsed this fall after a CoinDesk investigative report called into question FTX’s ability to redeem its FTT tokens. The article precipitated a run on the FTT token, which prompted Binance and other institutions to liquidate their multibillion dollar positions in FTT. Since the bottom fell out of FTT, it has been revealed that the assets of FTX retail customers were being accessed by FTX’s sister firm Alameda Research to finance highly speculative trading activities. This December, before Bankman-Fried could testify before Congress at the request of Chair Maxine Waters, he was arrested in the Bahamas pending extradition to the US on multiple counts of fraud.
As more details have emerged about FTX’s fraud, it has become clear there was a flagrant disregard at the exchange for basic best practices. The company neglected the basic AML/KYC that other global crypto exchanges and traditional banks have adopted. FTX was actively commingling client funds with its investment wing, Alameda Research. Furthermore, CoinDesk reports that there are potential conflicts of interest between the executive leadership of Alameda and FTX.
Capitol Hill Crypto reported that in hearings this December, legislators heard testimony calling for clear rules about the segregation of client and company funds in the crypto industry. At the hearings, questions were also raised about Bankman-Fried’s frequent personal meetings with regulators. In response to FTX’s abuses of the regulatory patchwork governing crypto, Senator Elizabeth Warren and Senator Roger Marshall have introduced the Digital Asset Anti-Money Laundering Act.
The FTX collapse calls into question the power, prestige, and influence that investors, media, and government give to visionary founders. Billions of dollars and thousands of jobs can rest on the decisions of one individual, and crises like FTX force us to reconsider the trust the public gives these leaders. Vice explores the role Bankman-Fried’s personal “longtermerist” philosophy played in FTX’s collapse. The article considers the potential influence this philosophy had on his decision to commit billions of dollars of fraud today to finance initiatives aimed at the far future.
On a panel at our recent Middle East and Africa Summit, Coinbase Strategic Advisor John D’Agostino said, “We have to stop hero worship,” arguing that the crypto industry should not rely on high-profile individuals as ambassadors. D’Agostino instead suggested that well governed projects need to be more important than the personas behind them. He added, “We need to trust in systems and companies and governance.” Moving forward, innovation in digital assets will demand good governance, accountability, transparency, and compliance.