Stop me if you've heard this one before. A crypto company promises lavish interest rates to entice customers to park their Bitcoin there and, when they do, lends it out recklessly using slapdash bookkeeping. Oh, and the company also uses customer funds to invest in its own affiliates and employs senior executives who are wildly unqualified or outright criminals. Before long, it implodes and leaves customers wondering how—or if—they'll get their money back.
What makes this tale special is that it's not about FTX or Celsius or one of the other firms that's become a byword for crypto scams. Instead, the company in question is an outfit called Cred, which opened in 2018 and filed for bankruptcy in 2020—shortly before the most recent bull market that spawned FTX and its demon compatriots.
A new Fortune feature on Cred's collapse cites multiple sources who describe it as a "canary in the coal mine"—a blatant warning to regulators of impending danger, and an example of everything that could go wrong with unsupervised crypto firms. Unfortunately, the regulators totally missed Cred, just as they did FTX two years later.
The most infuriating part of the saga is when we learn the career paths of the top execs who ran Cred. Based on their performance—which included putting a criminal fugitive in the C-suite and using Google Sheets to track customer accounts—these people should not be allowed to operate a hot dog stand. Yet, even as Cred was crumbling, they set about opening a new crypto investment firm that—wait for it—failed and went out of business this spring.
Then there is the sorry story of Cred's customers, who collectively lost $135 million. These people are victims of fraud and deserve sympathy—for the most part. In some cases, though, there is an element of "what the hell were you thinking?" This includes D, an airline pilot, who had previously been burned by the Ponzi scheme Bitconnect but nonetheless claims to have gone all in on Cred with money he could have used to buy a house and put his kids through college. (For the love of God, people, don't do this. If you want to invest in crypto, use only amounts you can afford to lose and put the rest of your money in safe stuff like Vanguard.)
The bottom line here is that we are still learning hard lessons from crypto's golden age of greed and that, if the industry is going to flourish again, both regulators and investors need to be on their toes.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
