The Tribune

• Would lose ‘global respect’ if did so

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Halting its digital assets growth strategy due to FTX’s collapse would be “the worst thing The Bahamas could do”, an industry entrepreneur says, even though the failed crypto exchange now faces a local criminal investigation.

Kevin Hobbs, chief executive and founder of Aventus Ventures, and a blockchain investor for ten years, told Tribune Business that pausing the country’s ambitions to become a regional digital assets hub immediately following FTX’s debacle could be interpreted as “an admission of guilt” when no blame is attached to this jurisdiction.

Warning that such a move would also likely take The Bahamas “out of consideration on a global scale” as a welcoming destination for digital assets companies, he argued that both the Securities Commission and the Government “could not foresee” both the collapse of Sam Bankman-Fried’s empire and the speed with which it occurred.

Speaking before it was yesterday confirmed that the Royal Bahamas Police Force has launched a criminal probe into FTX’s rapid unravelling in the space of a week, Mr Hobbs told this newspaper that local regulators likely need to ask “a different set of questions” for incoming digital assets businesses and conduct due diligence scrutiny more appropriate to this niche than traditional bank and trust companies.

In FTX’s wake, he called on Bahamian regulators to pay especially close attention to companies with their own digital “native” tokens and make sure these were not being used as collateral to “prop up” assets they do not have. Mr Hobbs also revealed that he and other digital assets operators had become increasingly uneasy about FTX and Mr Bankman-Fried’s trading company, Alameda Research, earlier this year as “something weird was going on”.

The Royal Bahamas Police Force, in a statement issued yesterday, said it was working closely with FTX’s principal, regulator, the Securities Commission, to probe whether any “criminal misconduct” was involved in FTX’s spectacular collapse. 

“In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets, a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred,” the police said.

Meanwhile, Mr Hobbs, who said he established “a couple” of digital assets companies in The Bahamas because of “the strides” made with the Digital Assets and Registered Exchanges (DARE) Act and implementing a robust regulatory framework, argued that it was “to early to tell” the precise impact FTX’s woes will have on the jurisdiction.

“I think the Commission did a really good job with acting rapidly in freezing the assets of FTX in The Bahamas. That’s a very good move on their part,” he told Tribune Business. “I also saw some people were going to bail-out some of those assets and have been following it closely with my team to see what it would be for The Bahamas.

“If The Bahamas comes out, and the Government comes out..... The Securities Commission could not have foreseen what would happen. I wouldn’t put it on the Government here.... I’m hoping with the swift move from what the Securities Commission did, and how many assets they have here in The Bahamas, The Bahamas won’t get hurt.  It doesn’t seem like a lot came from The Bahamas or the headquarters here. A lot seems to have come from Chicago and US offices.”

Mr Hobbs argued that the factors behind FTX’s collapse were driven by issues internal to the crypto exchange, and decisions taken by Mr Bankman-Fried and the tight-knit group around him, rather than any actions taken by The Bahamas or deficiencies in its regulatory regime.

However, the Bahamas-domiciled entrepreneur revealed there had been growing digital assets industry concerns surrounding FTX for some months. These centred on Alameda Research, the trading firm owned by Mr Bankman-Fried, and which was inextricably linked to the crypto exchange.

Media reports have suggested some $10bn in FTX client funds were transferred to Alameda Research, which were then used by Mr Bankman-Fried to acquire struggling digital assets entities such as Blockfi and Voyager. Mr Hobbs said he was “propping up the market” with borrowed funds (FTX client monies) secured by the crypto exchange’s own FTT tokens, which were essentially “worthless”.

He added that Mr Bankman-Fried engaged in this activity “when he had nothing in the tank and should have been taking care of his own house”. Mr Hobbs continued: “A lot of us in the industry saw this a long time ago. I got out of FTT tokens in mid-April.

“There was something weird going on with FTX and Alameda. There was too much weird stuff going on. It didn’t feel right. I told people on my own team about it. I have some people on my team who have got hurt because they still have FTT tokens.”

While many will argue that The Bahamas should adopt a conservative approach, and slow the flow of licensing/registration of digital assets businesses in the wake of FTX’s collapse, Mr Hobbs argued that it should instead stick to the present growth strategy - albeit with a modified, enhanced approach to due diligence.

“That would be the worst thing The Bahamas could do,” he replied, when asked if this nation should pause its digital assets expansion. “If The Bahamas paused its digital assets strategy it would probably take them out of consideration on a global scale for this emerging growth technology.

“The Bahamas has been able to attract global talent with the DARE Act and how transparent it is to talk to the Government and the Securities Commission. If they were to pause their strategy, The Bahamas would lose all global respect because it looks like an admission of fault. There’s no fault to pay.

‘If The Bahamas was to pause its strategy it would be the worst thing to do. They’d lose business where they have been attracting business. My advice to the Government is to keep moving forward with what you’re trying to do. This is an opportunity to learn more.”

With OKX, another major crypto currency exchange, just having been licensed to operate in The Bahamas and another two on the way, Mr Hobbs said: “This is an opportunity to work at the ground level with industry leading players and to say we’re not going to let this happen again and we will be global leaders in how we manage ourselves.”

He suggested that The Bahamas tweak its regulatory regime to conduct due diligence and scrutiny more specific to the digital assets industry, especially when it came to companies with their own tokens such as FTX’s. “It’s about creating a new set of guidance and a few more questions,” Mr Hobbs added. “We want to know more about what you want to do with applications specific to the crypto industry.”