Have you been paying attention to the FTX Crisis headline news lately? If so, you’ve probably heard something about the bankruptcy of the fourth-largest crypto exchange in the world, FTX. In this featured article, I’ll talk about FTX, what it is, who ran it, and what led to its collapse. I’ll try to be succinct and not include too many confusing details. I hear you … just the pertinent facts, please!
After updating you on the FTX crisis, I’ll talk about what I call, The Rest of The Story. This section will explore my findings on SBF’s political and social connections.
Introduction – Overview of the FTX Crisis
Here’s a quick review of the crisis events leading up to the fall of FTX.
Simply put, FTX’s sister company Hong Kong-based private equity firm Alameda Research conducted very aggressive crypto trading strategies that lost tons of money. FTX loaned Alameda the money it needed to perform these losing trades, and when the money ran out, FTX sent their depositor’s assets to Alameda. This was no way to run a business. It was a house of cards waiting to collapse. Eventually, it would become known as a Bernie Madoff-style Ponzi scheme. But I’m getting ahead of myself.
Now, the executives at FTX and Alameda knew the situation was dire because they created it, so they reached out to the crypto community to find someone to bail out their beleaguered empire.
They turned to Binance first because they already had a relationship with them. You see, Binance incubated Alameda back in December 2019, providing startup capital and advice to get the company going. The FTX exchange was born in 2021, and that’s when Binance decided to exit its equity position. They received $2.1 billion in BUSD and FTT tokens.
At first, CZ, the CEO of Binance, was happy to consider bailing out FTX, partly to protect its own interests in FTT and partly to protect FTX users and the crypto industry. However, once Binance’s financial team unraveled the messy books of FTX, it was clear they had a severe financial problem. That’s when CZ backed out of the deal and announced his intention to begin liquidating their FTT positions.
That announcement, plus subsequent trades, created a bank run on FTT tokens, and massive selling ensued. The FTT token price collapsed within 1 day.
FTX Crisis – Headline News
Here’s a brief rundown of the headline news to back up the Introductory storyline.
On November 4, Coindesk and Dirty Bubble Media reported, “If Coindesk and our analyses are correct, Alameda Research’s net equity is exceeded by the unrealizable “value” they ascribe to FTT, SRM, OXY, MAPS, and FIDA. Their financial situation is precarious, to say the least.”
On November 8, FTX asked Binance for financial help. CZ said he intended to acquire FTX.com and started conducting due diligence research into their financials.
On November 10, a Tether Executive announced, “Tether is freezing FTX USDT at the request of law enforcement while investigations occur.”
On November 10, FTX CEO Sam Bankman-Fried (SBF) told an investor, “Our sister company, Alameda, owes FTX about $10 billion. FTX lent billions of dollars worth of customer assets to Alameda to fund risky bets, the WSJ wrote.”
Early Friday, November 11, SBF was seeking nearly $10 billion to rescue his FTX empire. Binance almost agreed to buy FTX, but after analyzing FTX’s balance sheet, they backed out.
Then Friday, November 11, the cryptocurrency exchange FTX quickly collapsed and declared Bankruptcy, leaving $10-$50 Billion in liabilities with only $1 billion in assets (among those were Ukraine investments).
This last news headline really caught my attention. I understand that FTX, as a business, filed for bankruptcy, but I didn’t get the Ukraine connection. So, I did some digging. Keep reading, and I’ll share what I’ve uncovered.
But first, here are a couple more recent news headlines.
FTX, FTX.US, and Alameda will file for Chapter 11 bankruptcy in the US; Sam Bankman-Fried (SBF) resigns.
Criminal charges against Sam Bankman-Fried are ‘on the table’ after FTX’s epic collapse.
Okay, let’s try unpacking these news headlines and figure out what happened and what is currently going on.
FTX Crisis – Who is Sam Bankman-Fried?
At his peak, I learned that SBF was worth $26 billion, though it quickly dropped to about $16 billion just before last week’s crisis. At only 30 years old, this young billionaire was making waves in politics, business, and with celebrities.
“Sam Bankman-Fried was a 30-year-old with a mop of brown hair and enough clout to go by his initials, SBF. He had an international cryptocurrency exchange called FTX, a US crypto exchange called FTX.US, a trading firm called Alameda Research, and $16 billion in cash.”
Bloomberg
He became a major political donor and secured the naming rights to the NBA’s Miami Heat Arena. To get more retail investors to signup with FTX Exchange and start trading crypto, he spent $20 million on ad campaigns involving football quarterback Tom Brady and Brazilian fashion model Gisele Bündchen.
Amazingly, SBF became a crypto billionaire in only 4 years, building one of the world’s largest and seemingly successful crypto empires. Even more impressive is that he lost most of his wealth in a day and his empire within a couple of days.
My question is, how did he do all this?
I don’t believe for a moment that SBF achieved all his greatness and success by himself. He had help. But who? More on that topic later in this article.
FTX Crisis – the FTX Empire
The FTX business empire was/is composed of the following:
- Alameda Research – a trading firm
- FTX.com – international crypto derivatives exchange incorporated in the West Indies and based in the Bahamas
- FTX.US – a US crypto derivatives exchange
- FTX Group – 134 affiliated companies (See footnote 1)
- FTX Foundation – non-profit philanthropic collective funded by SBF
- And the FTX cryptocoin, the FTT ERC-20 token
FTX started with Alameda Research, a trading firm founded in 2017 by SBF.
In April 2019, SBF and Gary Wang launched FTX (short for Futures Exchange), where SBF served as the CEO until November 11, 2022, and Wang served as CTO. FTX was a centralized cryptocurrency exchange offering spot trading and derivatives markets. The exchange issued its own crypto token, FTT, and was the fourth-largest crypto exchange by volume as of Tuesday, November 8, 2022.
FTX.US, the U.S.-based version of the FTX crypto exchange, launched in late 2021.
The FTX Foundation is a very suspicious-looking non-profit organization to me. I’ll not delve further into this foundation for this article. That’s probably another rabbit hole.
The FTX Group is a bunch of companies bought by or invested in by FTX/Alameda. Many of these companies are having financial difficulty due to the collapse of FTX. Look at the graphic below and see if you recognize any names. If you’ve invested in crypto projects on this list you may want to sell your tokens.
FTX Crisis – Collapse of the FTX Empire
Until last week, FTX was a massive player in the crypto industry. The cause of its demise lies squarely on the shoulders of its illiquid Ethereum ERC-20 token, FTT, and the mismanagement of company assets and user deposits. Here’s a simple quote that explains the problem.
“It’s fascinating to see that the majority of the net equity in the Alameda business is actually FTX’s own centrally controlled and printed-out-of-thin-air token, FTT.”
FTX created the FTT token to incentivize users to trade on their platform and earn interest in FTT tokens. FTT holders enjoyed discounts on trading fees. But what FTX traders and FTT holders didn’t know was what the company behind FTX was doing with their deposited funds.
A Reuters report said that earlier in 2022, Bankman-Fried transferred customer funds from FTX to Alameda after Alameda was hit with a series of losses. Of course, he did this without telling anyone. But I’m getting a little ahead of myself.
“At least $1 billion in FTX client funds were reported missing.“
Reuters
The collapse of the FTX Empire started when a leaked financial report exposed the link between Alameda’s balance sheet and FTX’s balance sheet. Alameda’s assets mostly centered around the FTT token, an FTX creation minted out of thin air with no real utility, no liquidity, and no financial backing other than the net worth of the FTX company, which was primarily backed by FTT tokens it created and sold.
FTX Crisis – Binance Backs Out
Wrap your head around that statement. Does anyone remember Bernie Madoff? This circular relationship between Alameda and FTX was a Ponzi scheme! A giant Ponzi money loop just waiting to collapse under the weight of its own debt. To survive, they needed an infusion of cash, fast!
So, SBF reached out to a former ally, the CEO of Binance. Now a rival crypto exchange, CZ was more than happy to accommodate the impending doom of FTX. CZ tried to be civil about it by taking the time to consider buying them, but after reviewing the failing company’s balance sheet, he backed out of the deal. Afterward, CZ couldn’t sell his FTT fast enough.
During this fallout, Binance CEO Changpeng Zhao (CZ) called Samuel Bankman-Fried, a “psychopath.”
FTX Crisis – Impending Bankrun
Remember, until November 6, 2022, Binance owned about 23 million FTT tokens. After Binance discovered that Alameda might be insolvent, Changpeng Zhao (CZ) decided to sell their remaining FTT tokens to protect his company. You see, CZ already had to deal with the LUNA collapse earlier in 2022, and he didn’t want to take any chances with FTX and Alameda.
Following the news of Binance’s intention to sell its FTT holdings, the price of FTT fell like a rock. Once fear gripped the crypto markets, and as Binance began dumping its 23 million FTT tokens, the FTT token price soon collapsed. A full-on bank run took over.
With the bank run nearly complete, there will be more fallout from the FTX collapse, and more details will probably unravel in the coming weeks and months. But the bottom line is that FTX is done, and FTT is going to zero. Many lawsuits will follow, and I wouldn’t be surprised if someone gets prosecuted.
Former Kraken CEO Jesse Powell slammed FTX CEO Sam Bankman-Fried for recklessly tarnishing the crypto industry’s reputation.
“This isn’t about aiming high and missing. This is about recklessness, greed, self-interest, hubris, sociopathic behavior that causes a person to risk all the hard-won progress this industry has earned over a decade for their own personal gain.”
Here’s another quote a crypto friend sent me.
“But I once again have to ask the question of how the heck world-class investors gave FTX more than a billion dollars without realizing the CEO—out of malice, ineptitude or sheer laziness—was directly borrowing money from the company, commingling corporate accounts and using customer deposits to bail out his own personal crypto-trading giant.”
Well, here’s the sales pitch SBF and company used on venture capital firms, I quote,
“Hey guys, good news, we’re a bunch of 25-year-olds. We don’t really know what a bitcoin is, but we’re trading it.”
AND NOW – THE REST OF THE STORY!
FTX Crisis – CEO Sam Bankman-Fried
How did SBF get started with FTX?
Bankman-Fried studied physics at the Massachusetts Institute of Technology.
After college, Bankman-Fried went to work for the global trading firm Jane Street. That’s where he learned the art of arbitrage— a form of trading. He also traded currencies, futures, and exchange-traded funds for Jane Street Capital.
By 2017, crypto was booming, and SBF realized he could use his arbitrage skills to exploit the gaps in crypto prices. Bankman-Fried soon earned the nickname “the Moby Dick of crypto whales” for the waves he was making in the crypto industry.
In 2020, he began lobbying Congress several times yearly for new crypto rules. He’s also donated millions to super PAC, GMI PAC, according to Politico.
Where did SBF get funding?
Major investors like SoftBank Vision Fund, Tiger Global, Sequoia Capital, and BlackRock placed bets on FTX in early funding rounds. By the first quarter of 2022, FTX was valued by investors at a combined $40 billion, according to Forbes.
Where did all the profit go?
SBF allocated much of that wealth towards sponsorships, funding political leaders, and furthering his moral agenda. According to Politico, he suddenly emerged as a significant political donor. In 2020 he spent over $10 million backing Joe Biden’s presidential campaign; in 2022, he spent over $40 million on political campaigns.
“SBF… A prolific political fund-raiser.”
New York Times
SBF and the Crypto Industry
Bankman-Fried has been credited with doing great things for the crypto industry, but I don’t see it this way. In fact, I don’t believe he cared about crypto at all. As a somewhat experienced equity arbitrage trader, he exploited an opportunity in the crypto markets.
Jeff Brownstone wrote,
“Back in October of 2021, Forbes sat down to profile Bankman-Fried. At the time, SBF was still a wunderkind in the industry. But in hindsight, one of his answers is revealing.
When asked if he would abandon crypto if he thought he could pile up more money doing something else like trading orange juice futures, SBF didn’t hesitate to say, “I would, yeah.”
Forbes
If SBF was not seriously committed to crypto why was he lobbying Congress to pass a bill that would give the US Commodity Futures Trading Commission the power to oversee the crypto markets? In his testimony to the Senate, SBF described his “vision for the CFTC as a digital-assets market regulator for the US.”
If SBF was playing the crypto game just to make gobs of money, why did he care about its regulation? And why did he choose the CFTC over the SEC to lead the regulator charge? Who knows!
The CEO of investment bank Jefferies shared his thoughts about “reckless” actions by Bankman-Fried.
“The millions he spent helping elect Democrats and write his own regulatory agenda in Washington have blown up, effectively turning him — and the crypto industry — toxic.”
FTX Crisis – SBF’s Personal Life
Like his companies, Bankman-Fried’s complex and shadowy personal life is unraveling before our eyes. He was reportedly in a kind of polycule (network of non-monogamous sexual relationships) with his ten other roommates in the Bahamas, who were apparently all romantically involved with each other while attempting to run the FTX empire. Eww!
To make matters even worse, his ex-girlfriend, Caroline Ellison, who served as Alameda Researches CEO, bragged about ‘regular amphetamine use’ on Twitter.
It’s pretty safe to assume SBF is also addicted to amphetamines. One of the tell-tale signs is his uncontrollable shaking. Watch the short video below and you’ll see what I mean.
FTX Crisis – Is SBF a Sociopath?
Many business people and crypto investors that know SBF have claimed that he is either a sociopath or a psychopath. Since I don’t know him personally, I can’t judge him directly. But I can create an opinion based on what others know about him or by his own comments.
Let’s begin with “Effective Altruism” EA. SBF was the most prominent financial supporter and media supporter of EA. SBF put $160 million into the FTX Future Fund, designed to carry out the work of the EA movement. But what exactly is EA, and why does it matter to SBF?
In its own words, EA is “a research field and practical community that aims to find the best ways to help others and put them into practice.” EA involves studying various charitable endeavors, figuring out which ones do the most good and directing money to them. It has also become an influential subculture in the Bay Area, where devotees commonly refer to themselves as psychonauts.
I don’t know what a psychonaut is, but it doesn’t sound good.
FTX Crisis – Effective Altruism
Let’s get real. What do SBF and other EA followers really believe about their EA movement?
“Effective altruism posits that making money by any means necessary is OK because you … are so brilliant that you absolutely should have all the power implied by billions of dollars in the bank.”
Coindesk
It seems that SBF took the above EA definition to heart and became embroiled in making money and having power and control. He may have lost sight of the humanitarian reasons for his involvement with EA.
At any rate, His association with “effective altruism” has tarnished the movement, and the entire team behind his so-called philanthropic organization, FTX Future Fund, has quit.
Now, the EA movement is attempting to answer two questions:
- 1) is SBF a naïve utilitarian that went too far, or
- 2) is SBF a sociopath using EA to reputation launder?
When I looked up the definitions of sociopath and reputation laundering, they seemed to fit SBF perfectly. But I’ll let you decide for yourself.
Reputation laundering occurs when a person or an organization conceals unethical, corrupt, or criminal behavior by performing highly-visible positive actions with the intent to improve their reputation and obscure their history.
A “sociopath” has little regard for another person’s emotions, rights, or experiences. They lack remorse for their actions and act in ways that show no concern for others, including lying, cheating, and manipulating.
FTX Crisis – Summary
I hope this article helps you understand what happened to FTX and why it’s essential not to invest in a company or cryptocurrency without due diligence first. Many of my crypto buddies tried to get me to use the FTX exchange and buy FTT. I didn’t have time to research, and my intuition quietly suggested that I not use them. At the time, I didn’t understand why I was NOT drawn to FTX, but now I know. My parting words are…TRUST YOUR INTUITION!
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FTX Bankruptcy
134 of FTX’s entities filed for bankruptcy:
1. Alameda Aus Pty Ltd
2. Alameda Global Services Ltd.
3. Alameda Research (Bahamas) Ltd
4. Alameda Research Holdings Inc.
5. Alameda Research KK.
6. Alameda Research LLC
7. Alameda Research Ltd
8. Alameda Research Pte Ltd
9. Alameda Research Yankari Ltd
10. Alameda TR Ltd
11. Alameda TR Systems S. de R. L.
12. Allston Way Ltd
13. Altalix Ltd
14. Analisya Pte Ltd
15. Atlantis Technology Ltd.
16. B for Transfer Egypt
17. B Payment Services Nigeria
18. B Transfer Services Ltd
19. B Transfer Services Ltd. UAE
20. B Transfer Services Uganda
21. Bancroft Way Ltd
22. BitPesa Kenya Ltd.
23. BitPesa RDC SARL
24. BitPesa Senegal Ltd.
25. BitPesa South Africa
26. BitPesa Tanzania Ltd.
27. BitPesa Uganda Ltd.
28. Bitvo, Inc.
29. Blockfolio Holdings, Inc.
30. Blockfolio, Inc.
31. Blue Ridge Ltd
32. BT Payment Services Ghana
33. BT Payment Services South Africa
34. BT Payments Uganda
35. BT Pesa Nigeria Ltd.
36. BTC Africa S.A.
37. BTLS Limited Tanzania
38. Cardinal Ventures Ltd
39. Cedar Bay Ltd
40. Cedar Grove Technology Services, Ltd
41. Clifton Bay Investments LLC
42. Clifton Bay Investments Ltd
43. CM-Equity AG
44. Corner Stone Staffing
45. Cottonwood Grove Ltd
46. Cottonwood Technologies Ltd.
47. Crypto Bahamas LLC
48. DAAG Trading, DMCC
49. Deck Technologies Holdings LLC
50. Deck Technologies Inc.
FTX Crisis – FTX Bankruptcy
51. Deep Creek Ltd
52. Digital Custody Inc.
53. Euclid Way Ltd
54. Exchange 4 Free Seychellen
55. Exchange 4Free Australia Br.
56. Exchange 4Free Ltd.
57. Exchange 4Free South Africa Br.
58. Exchange 4Free Swiss Branch
59. Finfax Company
60. FTX (Gibraltar) Ltd
61. FTX Canada Inc
62. FTX Certificates GmbH
63. FTX Crypto Services Ltd.
64. FTX Digital Assets LLC
65. FTX Digital Holdings (Singapore) Pte Ltd
66. FTX EMEA Ltd.
67. FTX Equity Record Holdings Ltd
68. FTX Europe AG
69. FTX Exchange FZE
70. FTX Hong Kong Ltd
71. FTX Japan Holdings K.K.
72. FTX Japan KK.
73. FTX Japan Services KK.
74. FTX Lend Inc.
75. FTX Marketplace, Inc.
76. FTX Products (Singapore) Pte Ltd
77. FTX Property Holdings Ltd
78. FTX Services Solutions Ltd.
79. FTX Structured Products AG
80. FTX Switzerland GmbH
81. FTX Trading GmbH
82. FTX Trading Ltd
83. FTX TURKEY TEKNOLOJİ VE TİCARET ANONİM ŞİRKET
84. FTX US Derivatives LLC
85. FTX US Services, Inc.
86. FTX US Trading, Inc
87. FTX Vault Trust Company
88. FTX Ventures Ltd
89. FTX Ventures Partnership
90. FTX Zuma Ltd
91. GG Trading Terminal Ltd
92. Global Compass Dynamics Ltd.
93. Good Luck Games, LLC
94. Goodman Investments Ltd.
95. Hannam Group Inc
96. Hawaii Digital Assets Inc.
97. Hilltop Technology Services LLC
98. Hive Empire Trading Pty Ltd
99. Innovatia Ltd
100. Island Bay Ventures Inc
FTX Crisis – FTX Bankruptcy
101. K-DNA Financial Services Ltd
102. Killarney Lake Investments Ltd
103. Ledger Holdings Inc.
104. LedgerPrime Bitcoin Yield Enhancement Fund, LLC
105. LedgerPrime Bitcoin Yield Enhancement Master Fund LP
106. LedgerPrime Digital Asset Opportunities Fund, LLC
107. LedgerPrime Digital Asset Opportunities Master Fund LP
108. Ledger Prime LLC
109. LedgerPrime Ventures, LP
110. Liquid Financial USA Inc.
111. LiquidEX LLC
112. Liquid Securities Singapore Pte Ltd
113. LT Baskets Ltd.
114. Maclaurin Investments Ltd.
115. Mangrove Cay Ltd
116. North Dimension Inc
117. North Dimension Ltd
118. North Wireless Dimension Inc
119. Paper Bird Inc
120. Pioneer Street Inc.
121. Quoine India Pte Ltd
122. Quoine Pte Ltd
123. Quoine Vietnam Co. Ltd
124. SNG INVESTMENTS YATIRIM VE DANIŞMANLIK ANONİM ŞİRKETİ
125. Strategy Ark Collective Ltd.
126. Technology Services Bahamas Limited
127. Tigetwit Ltd
128. TransferZero
129. Verdant Canyon Capital LLC
130. West Innovative Barista Ltd.
131. West Realm Shires Financial Services Inc.
132. West Realm Shires Services Inc.
133. Western Concord Enterprises Ltd.
134. Zubr Exchange Ltd