Senator Katie Moose$40 billion board member Pennsylvania Employee Retirement Program (PSERS) will never forget the first Pensions Board meeting she attended and the ESG presentation she heard. This included cryptocurrencies as a solution for the unbanked in African countries. “I was very much looking forward to ESG’s presentation, but was very confused about how black box fake currency could improve the lives of those suffering financial hardship on the continent. The unbanked need a fair financial opportunity, not an opportunity to be tricked and further exploited by tech-savvy Westerners.”
For those who conveniently forgot, there was a time not too long ago when cryptocurrencies were sold to national and local government pensions as being consistent with ESG objectives. (“ESG” stands for Environmental, Social and Governance. ESG investing is a way of investing in companies based on a commitment to one or more ESG factors. Also called investment, and impact investment.)
in him testimony At a hearing before the U.S. House of Representatives Committee on Agriculture in May 2022, FTX co-founder and CEO Sam Bankman-Fried said, “His business is about building a digital asset trading platform to serve better users. It was founded to exchange experience, customer protection, fair access, innovative products, and a trading platform that is robust enough for professional trading houses and intuitive enough for first-time users…
FTX has sought to combine the best practices of the traditional financial system with the best forms of the digital asset ecosystem. ”
He spoke eloquently about FTX’s commitment to a diverse workforce. “We are proud of our FTX employees and believe that one of our key strengths is our culture of mutual respect and cooperation. Born from the diversity of our team, which requires the spirit of the FTX has an ethnically diverse workforce around the world, and 60% of our employees are women in senior management positions. The parts have diverse backgrounds.”
Then there was the commitment to “give back.”
“FTX is committed not only to improving the lives of our customers through great products, but to improving the lives of people in the broader global community. Founded the FTX Foundation with the purpose of donating to philanthropic charities At a minimum, 1% of net commissions on FTX trading will be donated to the Foundation In addition, the founders of FTX will contribute a significant portion of their earnings Pledge to Donate Part Bankman-Fried has personally committed to donate 99% of his assets to FTX, its affiliates and their employees in 2022 alone. Members have so far contributed more than $100 million to alleviate global poverty, provide ventilators to countries ravaged by COVID-19, provide financial services to the unbanked, We have fought climate change by ensuring FTX is carbon neutral and helps the world achieve a brighter future.FTX is an ambition aimed at improving the long-term prospects of humanity. launched additional philanthropic initiatives, including the FTX Future Fund, which invests in significant projects FTX community philanthropy focuses on global poverty, animal welfare and community outreach 2021 , the FTX community organized the FTX Charity Hackathon, awarding $1 million to a group of local students with the best ideas for improving their mental and physical health.”
Then there was the effort to be “carbon neutral”.
“FTX Climate is a comprehensive initiative to make FTX carbon neutral, support critical environmental projects, and fund innovative research on the most impactful solutions to climate change. We plan to spend at least $1 million annually through FTX Climate.FTX strives to own a portion of the environmental costs of mining associated with public blockchains and, in addition to funding research, We bought a carbon offset to offset it.”
Perhaps most memorable is that FTX was trying to provide banking to the unbanked and the unbanked.
Bankman-Fried said: We work with nonprofits, cities and countries to make the financial system more inclusive.
The Federal Reserve estimates that 70 million Americans are unbanked or unbanked. They lack a safe place to store their money and pay exorbitant fees to cash checks. There are millions more bank accounts, but they face hefty fees if their balance falls below the minimum. Members of these communities often do not have insured checking accounts for a variety of reasons, including credit history. Traditional banking payment systems make it difficult to check real-time balances, resulting in overdrafts and high fees. Our bank, the Underbank Program, provides people disconnected from the financial system with free bank accounts and debit cards linked to crypto wallets. There are no fees and no minimum balance. Transferring funds is virtually free and accessible instantly over the phone. They can receive money, make payments, and use it to build savings. There are no fees or minimum balances. Transferring funds through crypto wallets is virtually fee-free and instant. ”
And finally, FTX was protecting Ukraine from Russian aggression.
“Ukraine is deploying digital assets to protect itself from Russian aggression and to support its people. into fiat currency.This is the first time a cryptocurrency exchange has worked directly with a public financial institution to provide a pipeline for cryptocurrency donations.The Ukrainian government, with the support of FTX, has Purchased vital defense and humanitarian equipment, including medical supplies, ballistic plates for bulletproof vests, walkie-talkies, soldiers’ lunches, infrared cameras, helmets, etc. Ukraine’s Deputy Minister of Digital Transformation said, “The purchases were made through cryptocurrency donations. All helmets and vests are currently saving the lives of Ukrainian soldiers.” In addition, when war broke out in Ukraine, FTX gave all Ukrainian users of our platform he $ 25. ”
As such, black box cryptocurrency investments were marketed as an elegant solution to climate change, racial and gender diversity, income inequality, financial system exclusivity, and even the war in Ukraine.
As cryptocurrencies seek to “improve lives,” many ESG investors (so-called “sophisticated institutions”), including US state and local government pensions, are reluctant to bet on workers’ retirement savings dreams. I could not do it. Today, these same pensions either directly or indirectly (through external fund managers) either deny holding cryptocurrencies outright, deny disclosure, or claim to have no access to information.
Nevertheless, information about “crypto-contagion” in public pensions is gradually emerging, Fairfax County, Virginia, discloses a staggering 10%+ holding. Whether you advocate or reject ESG, the cryptocurrency crisis is a powerful reminder that tying even the most laudable goals to investment decisions can lead to disastrous consequences.