The Fall of FTX ‘King of Crypto’ Sam Bankman-Fried
- Author: Joe Tidy
- Cyber journalist
At 18:00 (23:00 GMT) on Monday, December 12, agents from the Bahamas Financial Crimes Investigation Unit arrested Sam Bankman-Fried at his apartment complex in Nassau at the request of the US government. Sealed indictment filed by the Southern District of New York (SDNY).
The man formerly known as the “King Of Crypto” has seen his company collapse, stepped down as CEO and is now facing criminal investigation.
In recent years, the Internet has been flooded with lengthy interviews with him, speaking via video chat from his office desk in the Bahamas.
Some of them have a distracting clicking sound.
As the interviewees listen attentively to the incredible story of how he became a multimillionaire in five years, the sound is persistent and clearly comes from the mouse of the American entrepreneur.
It says “click, click, click” on and off in a flash.
Meanwhile, Mr. Bankman-Fried’s eyes wander around the screen.
It’s not clear from the videos what he’s doing on his computer, but his tweets can give us a pretty good clue.
“I’m (not) famous for playing League of Legends while making phone calls,” he tweeted in February 2021.
Mr Bankman-Fried – the former head of cryptocurrency exchange FTX – is an avid gambler. And in some tweets to his nearly one million followers, he explained why. Playing the team’s fantasy fighting game was his way of turning off managing two companies that traded billions of dollars a day.
“Some drink too much; some gamble. I play in the League,” he said.
According to a blog post by venture capital giant Sequoia Capital, Mr. Bankman-Fried played an intense League of Legends battle with his investment team during a high-profile video call.
He didn’t seem put off at all, though. The group proceeded to invest $210 million in Mr Bankman-Fried’s FTX company.
Sequoia Capital has since deleted that blog post and has now announced that it is writing off the FTX investment as a loss.
The firm is not the only investor to have lost huge sums of money since the collapse of Mr. Bankman-Fried’s $32 billion empire.
FTX had approximately 1.2 million registered users who were using the exchange to buy cryptocurrency tokens such as Bitcoin and thousands of others.
From large traders to everyday crypto-enthusiasts, many are wondering if they will get their savings back trapped in FTX’s digital wallets.
Dizzy is dizzying and Mr. Bankman-Fried’s rise is also a dramatic tale of peril, reward and beans.
Mr. Bankman-Fried attended the Massachusetts Institute of Technology (MIT), a prestigious research university in the US, where he studied physics and mathematics.
But the bright young student says it was the lessons he learned in the student dormitories that set him on the path to riches.
In a BBC radio interview, he recalled being involved in the “effective altruism” movement. Effective altruism is “a community of people trying to figure out what practical things you can do with your life to have the biggest possible positive impact on the world,” he said.
So, as Mr. Bankman-Fried recalls, he decided to go into banking to make whatever money he could to give back to good causes.
He learned to trade stocks during a short stint at the Jane Street trading firm in New York before getting bored and deciding to experiment with Bitcoin.
He noticed variations in the value of Bitcoin on different cryptocurrency exchanges and started arbitrage: buying Bitcoin from places that sold it cheap and selling it to other places that sold it more.
After a month of making modest profits, he got together with some friends from college and started a trading business called Alameda Research.
Mr Bankman-Fried says it wasn’t easy and it took him months to perfect the techniques of how to move money around banks and across borders. But after about three months, he and his small team hit the jackpot.
“We were super small,” he told the Jax Jones and Martin Warner Show podcast a year ago. “We just kept going. If someone throws another objection, we’d be creative, and if our system couldn’t handle it, we’d build a new system to jump through that hoop.”
By January 2018, his team was making $1 million a day.
A CNBC business reporter recently asked him how he felt.
Intellectually and according to his methodology, he said it “made perfect sense”. “But deep down, it surprised me every day,” he said.
Sam Bankman-Fried officially became a billionaire in 2021 thanks to his secondary and tertiary business, FTX. The crypto exchange grew to become the second largest in the world and a titan of the industry, seeing $10-15 million traded per day.
As of early 2022, FTX was valued at $32 billion and had a household name, with an NBA stadium bearing the company’s name and endorsements from celebrity endorsers such as the NFL’s Tom Brady.
Meanwhile, Mr Bankman-Fried was happy to give his Twitter followers an insight into his lifestyle. He mostly sleeps next to his office desk, he said, with a photo of himself lying next to his employees at his trading terminals.
In another, he posted in the early hours of the morning. “I couldn’t sleep. Back to the office,” he wrote.
Mr. Bankman-Fried’s dream of donating large sums of money to charity was also underway. In a BBC radio interview last month, he said he had given away “a few hundred million so far”.
And his generosity didn’t just extend to charities. In the last six months, the “King of Crypto” was given another nickname – “Crypto’s White Knight”.
With the price of cryptocurrencies plummeting in 2022, the so-called “Crypto Winter” is in full swing. While other companies in the industry were reeling, Mr. Bankman-Fried was handing out bailout money in the hundreds of millions.
Asked why he was pushing failing crypto companies, he told CNBC: “It’s not going to be good in the long run if we have real pain and real hits. And it’s not fair to customers.”
He also said in the same interview that he has $2 billion in reserves that he could use to help out failing crypto companies.
But soon after, he was in the same industry trying to raise money to save his company and clients.
Questions about FTX’s true financial stability began to swirl An article from CoinDesk The website suggested that much of Mr. Bankman-Fried’s trading giant at Alameda Research is based on a foundation made up of a coin invented by a sister company of FTX, not an independent asset.
The beginning of the end came a few days later when FTX’s main competitor – Binance – publicly sold all of its FTX-linked crypto tokens.
Binance CEO Changpeng Zhao told his 7.5 million followers that his company would be selling shares “in light of the latest findings.”
Launched on FTX, panicked customers withdrew billions of dollars from the cryptocurrency exchange.
Withdrawals stalled and Mr Bankman-Fried tried to secure a bailout, with Binance at one stage considering a public buyout before walking away.
Binance said reports of “mishandling of customer funds and investigations by US agencies” had changed its decision.
A day later, FTX went bankrupt.
Mr Bankman-Fried apologized in a series of tweets: “I’m sorry to end up here again.
“Hopefully they can find a way to get things back on track. Hopefully this can bring them some transparency, some trust and some governance.”
He was also “surprised to see things fall apart the way they did.”
And yet he remained optimistic. A few days before his arrest, Mr. Bankman-Fried told me he hoped to start a new business to make enough money to pay back the victims of the FTX collapse.
When asked if he is preparing for the possibility of arrest, he said: “I spend some time thinking at night, yes, but when I get up during the day, I try to focus, be as productive as I can and ignore the things that are outside my control.”
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