FTX: The fall of Sam Bankman-Fried is crypto’s Enron moment.
In recent weeks, the world’s richest man and his flailing attempts to figure out what to do with Twitter have dominated the news cycle. However, his unhinged management-by-tweets reality show are nothing compared to an almighty tussle between two crypto-bros.
Internet magic money (aka crypto) billionaire Sam Bankman-Fried, better known as SBF, is the man behind FTX, a crypto exchange. He seems to have angered fellow magic money billionaire and fremeny, Changpeng Zhao, better known as CZ and CEO of the rival exchange Binance. It might have to do with FTX cozying up to regulators to get the regulations beneficial to the FTX but not its rivals.
Last week, the FTX balance sheet was leaked to crypto news site Coindesk, which effectively caused a run on the exchange by exposing the financial ties between FTX and Alameda Research, a crypto trading firm also owned by SBF. The balance sheet showed that FTX’s finances were a paper tiger and ripe for plundering.
There followed a jujitsu move by which the Binance chief created a market run on FTX. His firm dumped the FTX tokens they were holding, essentially telling the market they had no faith in them. “CZ outsmarted SBF, plain and simple,” a friend who is deeply involved in this industry told me of the clashing egos. “CZ helped SBF create FTX, let him grow it, and then when it got too big, he destroyed it.”
CZ, in an ironic Robinhood act that SBF himself pioneered with other failing crypto firms, announced that he was buying SBF’s empire in a move to “save” FTX. A day later he declared, “no deal” as FTX is a big hairball and not worth the hassle. Now that’s a proper decimation of a competitor. The whole thing is quite messy – much like the whole crypto ecosystem, which is supposed to be open and transparent but is more opaque than a dog with glaucoma.
If this whole thing looks like a Ponzi scheme involving magic Internet money, then it just might be – as the Substack Dirty Bubble Media outlines in this post. Feel free to follow VC-twitter and read their threads. Whatever you do, beware of those promising endless good times, unicorns and money raining from the skies.
And a fair amount of money aimed at (mostly) Democrat politicians: FTX Founder Spent $40 Million As Democrat Midterm Megadonor.
Leading up to Sam Bankman-Fried’s spectacular implosion – in which his firm FTX evaporated billions in wealth after the now-bankrupt cryptocurrency exchange allegedly commingled client assets with his trading firm into a liquidity crunch – he became the sixth-largest donor in this year’s midterm election cycle, giving some $40 million to mostly Democratic candidates and causes.
According to Forbes, Bankman-Fried was second only to George Soros among billionaire donors to Democratic groups during the 2022 midterm election cycle.
FTX allegedly loaned Alameda Research – a trading firm founded by Bankman-Fried – roughly $10 billion in client assets, which has landed him under federal investigation by the SEC, CTFC, and the Justice Department – the latter of which already had been working on a months-long investigation, according to the Wall Street Journal. The CTFC, meanwhile, is tasked with regulating certain elements of the crypto markets – including digital assets that are as commodities, and crypto exchanges and clearinghouses.
In late September, Bankman-Fried admitted that his political donations were mostly to Democrats, and Republican recipients were ‘targeted’.
The fallout could be enormous: Canadian teachers could have a $95 million hole in their pensions due to the FTX crypto implosion.
The crisis at cryptocurrency exchange FTX is having ramifications far and wide. Now Canada’s third largest pension plan is revealing details about its exposure to the troubled company led by 30-year-old crypto billionaire Sam Bankman-Fried.
On Thursday, the Ontario Teachers Pension Plan (OTPP) released a statement saying that in October 2021 it invested $75 million in both FTX International and its U.S. entity FTX.US. Additionally, it said, it made a follow-on investment of $20 million in FTX.US in January this year. The potential losses it could face are still unknown.
The OTTP wasn’t the only one burned by FTX’s collapse. Sequoia Capital, one of the most successful venture capital firms of all time, said it will mark down its investment of $214 million in FTX to zero. “We are in the business of taking risk,” it wrote to investors. “Some investments will surprise to the upside, and some will surprise to the downside.”
Other blue-chip backers of the platform include BlackRock, SoftBank, and Singapore’s sovereign wealth fund Temasek.
If only investors had listened to Larry David: Larry David predicted FTX’s implosion.
Larry David made a prediction about this week’s crypto meltdown that was prettaaay prettaaay good.
In a Super Bowl ad for the FTX crypto exchange in February, Larry David sarcastically predicted that FTX wasn’t going to make it. The ad shows David’s character throughout history, naysaying humanity’s greatest inventions, including the wheel, the lightbulb, coffee and democracy.
At the end of the ad, David learns about FTX, “a safe and easy way to get into crypto.” A dismissive David says, “Ehhh, I don’t think so. And I’m never wrong about this stuff — never.”
“Don’t be like Larry,” the FTX ad closes.
The ad resurfaced on social media this week after FTX imploded. David’s character was, it turns out, right to be skeptical.
FTX filed for bankruptcy proceedings in the United States on Friday, marking a stunning downfall for one of the biggest and most powerful players in the crypto industry. CEO Sam Bankman-Fried, the 30-year-old founder of the exchange, resigned.
To be fair, he was bound to be right eventually:
Besides bribed politicians and investor losses, there’s more fallout from FDX’s implosion: FTX Owes Miami $16.5M For Arena Sponsorship Cancellation. “Late Friday, the County and the Miami Heat announced that they had terminated the relationship with FTX because of its bankruptcy.”
So what’s next for Sam Bankman-Fried? FTX founder Bankman-Fried denies fleeing to South America amid crypto collapse.
Decline is a choice, America:
