It was a nervous week for millions of people who invest in cryptocurrencies and several voices came to evoke the 2008 financial crisis as it could have been the crypto economy’s “Lehman Brothers moment”. The future will tell, but in the present, the FTX bankruptcy is a story that almost instantly brings together billionaires, big investment houses, and even Twitter and Elon Musk, otherwise this was the year of grace 2022.
As if that wasn’t enough, it all happened the week of the US congressional elections and FTX’s young founder, Sam Bankman-Fried (or SBF as he is known to the crypto and Twitter tribe) was nothing short of the op second largest financial backer of Joe Biden’s 2020 campaign surpassed only by Michael Bloomberg.
seven breathtaking days
One of the most interesting discussions in the crypto economy is what drives crypto entrepreneurs and crypto customers. For some it is a political, social and economic revolution, for others it is (more) a way to earn money. What happened to FTX disappointed both, the former because they expected to take a few steps back in the credibility of the crypto economy, the latter because they feared the numbers that say the 15 largest cryptocurrencies in three days time more than 152 lost. billion dollars.
Who is Sam Bankman-Fried (or SBF): Born in 1992 and raised on the Stanford campus, the son of two academics who taught at California University Law School.
Not following in his parents’ footsteps, the founder of FTX graduated from MIT in physics and mathematics. There he left for his first job at Jane Street, a trading company where he learned the fundamentals of the area that would bring him fortune a few years later. It wasn’t long before he founded his own trading company, Alameda Research, in 2017, where he began trading cryptocurrencies, identifying opportunities between markets where Bitcoin was priced at a lower value and those where it had a higher valuation. But, as the story goes, it was a conference he attended in Macau in 2018 that definitely got him interested in cryptocurrency brokerage.
In 2019, he founded FTX, now based in the Bahamas, which until last week was the second largest platform for buying and selling cryptocurrencies, raising $627 billion this year alone. SBF is described as a huge fan of video games, namely League of Legends (LoL). In a post published by Sequoia Capital, the story of playing while participating in a video call with the investment team of what is one of the largest homes of venture capital and that it has invested $210 million in FTX. This week, the post was removed from the Sequoia Capital blog.
From white knight to “I screwed up”: Joe Biden was not the only politician to support the founder of FTX in these two years in which the platform has become a benchmark in the crypto economy. The platform gained prominence in various spheres. It has named stadiums (FTX Arena, formerly American Airlines Arena, in Miami, a contract terminated Friday after the bankruptcy filing) and had ad campaigns featuring such celebrities as NFL player Tom Brady and now-ex-wife and model Gisele. Bundched and tennis player Naomi Osaka.
They weren’t the only outward signs of success. In September, SBF provided assistance — worth $5 billion — to Elon Musk in its purchase of Twitter, it was revealed. He also earned the nickname “white knight” this year, not because he “helped” Musk, but because he came to the aid of struggling crypto companies such as Block Fi, to whom he loaned $250 million, and the broker Voyage Digitak, to whom it lent $500 million.
At the same time, he declared his commitment to altruism and established the FTX Future Fund to invest in social causes, in addition to declaring that he would hand over the profits he had made throughout his life to institutions that would make a better world.
It entered the list of billionaires in 2021 and in the latest investment round, FTX was valued at $32 billion. But in October of this year, the Bloomberg Billionaire Index estimated the founder’s personal fortune at “only” $10.5 billion. As of November 8, it was worth $991 million (the biggest one-day drop in this Bloomberg index). On November 10, Sam Bankman-Fried was writing on your twitter account: “I screwed up and should have done better”. On November 11, the Bloomberg Billionaires Index ruled that SBF was out of fortune.
the movie of events: The events of the past week – and probably the three years of FTX’s life – have all the makings of a good movie. And, probably, we will be able to watch it, since today it is known that Michael Lewis, the same author of “The Big Short”, who gave rise to the film of the same name, has followed the path of the founder of FTX for the past six months.
Let’s go to the chronology.
– Sunday, November 6?? Changpeng Zhao (or CZ, as he is called), founder of Binance, the largest platform for buying and selling cryptocurrencies, announced that he was going to sell the FTT he owned. FTT are the sign of the FTX platform and the reason for the sale was Coindesk’s disclosure of a report on Alameda Research according to which a significant portion of the trading company’s reserves were in its own cryptocurrency, which offered discounts to users when operating on the platform. That is, the funds Alameda Research used to make investments were backed by a currency created by its sister company, FTX. It is not prohibited in itself, but it did pose an increased risk of transparency and liquidity.
Zhao’s announcement led to a stampede for withdrawals on the platform: about six billion dollars were withdrawn by customers in 72 hours (as of February 2022, FTX had over one million users).
– Tuesday 8 Nov?? The same Changpeng Zhao announced an agreement to buy FTX and said he expected FTT to be “highly volatile” in the days that followed (warning that only reinforced the loss of value that reached an 80% devaluation on that day) .
– Wednesday, November 9?? The Wall Street Journal announces that Binance – also known as Changpeng Zhao – has pulled out of the buyout agreement, and on the same day Bloomberg announces that the SEC and Commodity Future Trading Commission are investigating FTX and its founder. Also on the same day, anonymous sources quoted by Reuters say that Sam Bankman-Fried allegedly transferred $4 billion in money from customers at FTX to his trading company, Alameda Research.
– Friday, November 11?? Sam Bankman-Fried resigns as CEO of FTX and announces that FTX, FTX US (US subsidiary) and Alameda Research have filed for bankruptcy?? According to CNBC, the documents presented concern 100,000 loans with a global value of between USD 10 and 50 billion.
To complete the story with the irony of the times, the officially appointed CEO to replace Sam Bankman-Fried is John J Ray III, the lawyer who oversaw the liquidation of Enron, the energy company that collapsed in 2001 and gave rise to to an audit scandal.
the next days: Bitcoin, the most valuable cryptocurrency, was trading below $16,500 this Monday and some analysts admit it could go below $10,000 (which would be a huge gap).
Ether, the second most valuable cryptocurrency, also traded for $1,230 this Monday, down more than 20% from last week.
This Monday, November 14, during a conference in Indonesia, the CEO and founder of Binance referred to the infamous year 2008, stating that the comparison to the current crypto moment “is probably a good analogy” and using the word regulation, little appreciated in the framework of the sector. “Over the past few weeks we’ve seen the industry in turmoil, so we need some regulation, but we need to get this right.”
Crypto winter was a phrase used throughout the summer of 2022. But the question everyone is asking now is whether this is already winter or whether the real storm is yet to come.