FTX was once perceived as a juggernaut in the crypto space. Its founder and CEO, Sam Bankman-Fried, was once touted to be crypto’s white knight in the ongoing bear market. But Sam’s charm and billions all turned to dust after the collapse of his crown jewels, FTX and sister company Alameda Research.
Sam, also known as SBF, became one of the richest people in the world at 30 years old. His assets were once valued at $26 billion. He gained the public’s admiration when he offered to rescue crypto companies that were about to go bankrupt.
“Sam Bankman-Fried is the new John Pierpont Morgan — he is bailing out cryptocurrency markets the way the original J.P. Morgan did after the crisis of 1907.” This is how Anthony Scaramucci, Founder of Skybridge Capital and former Whitehouse Director of Communications, described the FTX founder.
The Rise and Fall of FTX
All the accolades are now in the past. Institutions are distancing themselves from Sam and his companies. The crypto knight is now a pauper.
But how did it happen? How can a multi-billion empire just collapse in such a short period? Maybe the public was so charmed that signs of the fall were simply missed or ignored. Let us go back in history and make our way to the present to have a better idea of what happened.
2017. Alameda Research was created by SBF in Berkeley. FTX is what made Sam famous but Alameda was the first of many succeeding companies. He made money by arbitrage trading. Arbitrage is simply buying any asset at a low price and selling high for profit. He first noticed the price difference of Bitcoin (BTC) between Japan and the US. Alameda was his tool to conduct cross-border arbitrage[i]
May 2019. Sam Bankman-Fried and Gary Wang Founded FTX. FTT is its utility token.
Dec 2019. Binance, the world’s largest crypto trading platform by volume, announced a strategic partnership with FTX.
July 2021. Binance received $2.1 Billion in FTT tokens and stablecoins from FTX as part of the divestment package.
May 2022. Terra (LUNA) and its stablecoin TerraUSD (UST) began their collapse. The UST stablecoin was not able to maintain its 1:1 peg to the US Dollar and eventually lost more than 99% of its value. This started a contagion that led to the fall of several crypto companies.
June 2022. Three Arrows Capital (3AC), a Singaporean-based crypto hedge fund, went bankrupt partly due to its exposure to LUNA and UST. This affected other companies like Voyager Digital due to loans to 3AC.
In the same month, SBF offered to help distressed companies like BlockFi and Voyager.
July 2022. Voyager Digital, a crypto brokerage firm, filed for bankruptcy. 3AC owes Voyager $655 million in unsecured loans.
November 3, 2022. CoinDesk released a report which says that Alameda’s balance sheet is heavily exposed to FTT, FTX’s native token.
November 6, 2022. Binance CEO Changpeng Zhao tweeted that his company will liquidate its FTT tokens .
November 7, 2022. In a now deleted tweet, SBF tried to calm down investors by saying “assets are fine”.
November 8, 2022. Binance disclosed a non-binding letter of intent to buy FTX.
FTT’s value plummeted as holders panicked.
November 10, 2022.
- Binance decided to cancel the FTX rescue deal.
- Bahamian authorities froze FTX’s assets.
November 11-12, 2022.
- SBF tweets apology and said he should have done better
- SBF resigned as CEO.
- FTX announced that it will be filing for Chapter 11 Bankruptcy.
- $600 Million Dollars was allegedly hacked from FTX. The FTX app was compromised with malwares
November 16, 2022. SBF granted an interview with VOX, wherein he said regulators just make matters worse and don’t really protect customers.
November 17, 2022. Court document filed by FTX’s new CEO John Ray III, revealed that FTX had a complete failure of corporate control.
Nov 17, 2022. 3 Arrows Capital (3AC) Co-Founder Kyle Davies revealed that Alameda and FTX allegedly stop hunted their positions. This means that SBF’s companies traded against 3AC which led to its implosion.
Stop hunting is part of trading, but this is alarming because 3AC is FTX’s client. No self-respecting company should trade against a valued client with insider information.
November 30,2022. Sam said that he didn’t knowingly comingle funds between Alameda and FTX.
December 8, 2022. Do Kwon, founder of Luna, tweeted that Alameda started the Luna Crisis.
Dec 13, 2022. SBF was arrested by Bahamian authorities at the request of the US Government.
Dec 22, 2022 – Sam Bankman-Fried Released on $250 Million Bond With Restrictions
The Aftermath of the Collapse
The FTX implosion did not just affect its direct investors, but the whole crypto space. Bitcoin (BTC), the top cryptocurrency, made a new 2022 low of $15,500 the day FTT started its freefall.
BTC historically follows the traditional market. Between November 8-15, BTC and total crypto market capitalization dropped more than twenty percent. In contrast, the S&P 500 pumped more than six percent
Other Crypto companies are also affected when FTX imploded. One of the affected companies is Genesis which has $175 Million locked with FTX. This also affected Gemini Exchange, since Genesis is its Earn Program partner
The numbers, statistics and charts being floated around is nothing compared to the damage done to retail investors. Social media was abuzz with people who lost their life savings because of a CEO’s “mistake”. SBF saying sorry and saying he “F-up” will not magically make their customers whole.
If the allegations towards SBF and FTX were all proven to be true, then the “white knight” was actually the culprit behind the crypto contagion. The billions of dollars promised for crypto market rescue and philanthropy was a sham, since it was the people’s money to begin with.
Featured image from Unplash
