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How a huge crypto firm with 1m users – 80,000 of them in the UK – collapsed in just three days

Sam Bankman-Fried seemed unstoppable.

The 30-year-old was the CEO at FTX, the second-largest cryptocurrency exchange in the world.

His platform was used by more than 1 million people worldwide to purchase assets such as Bitcoin. They were attracted by stars-studded ads that made it look easy and safe.

Image Naomi Osaka was featured in an ad to FTX

SBF, or Bankman-Fried, was a well-known name in crypto. His company intervened to save smaller companies after they had been tipped into insolvency.


In just three days, a string of bombshell claims led to the collapse of FTX as well as a bankruptcy.

According to Bloomberg, Bankman-Fried’s personal fortune plunged by 94% in just 24 hours. This is the largest one-day drop of a billionaire.

Many thousands of people are out of their savings, with an estimated 80,000 in the UK.

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Several large sums of money were reported missing from the exchange amid claims that customer funds had been mismanaged.

Bankman-Fried, no longer a billionaire, says that his net worth has dwindled down to $100,000 (PS80,000), following the demise of FTX – and he admits it was a “bad month”.

Bankman-Fried could be in for a serious blow. Bankman-Fried is now facing criminal investigations into the collapse of the company. A number of lawsuits have been filed by aggrieved investors.

What’s next for the “Crypto King”? Why did his digital empire so rapidly rise and fall, and what does that mean for this already troubled industry?

An ‘altruistic’ entrepreneur

Californian-born Bankman-Fried, who is a symbol of “effective altruism” (getting wealthy to support good causes), is a teetotaller, and a vegetarian. He is far from the Machiavellian emperors that have gone before.

Yet, SBF was able to create an empire that would make Julius Caesar green eyed.

Bankman-Fried’s tale, which is not a tale of rags to riches, begins in San Francisco Bay where he attended a school that offered $56,000 per year.

SBF graduated from the Massachusetts Institute of Technology and then moved to Wall Street. He later started his own trading company called Alameda Research.

Tara Mac Aulay, his co-founder, left the company in 2018 partly because of “concerns about risk management and business ethics”.

Bankman-Fried was at a cryptocurrency conference and left the US to move to Hong Kong where he established FTX.

The FTX boom

FTX was created to enable people to purchase cryptocurrencies using their dollars and pounds. It was highly praised for its user-friendly interface. However, it made money by charging small fees per transaction.

FTX was home to more than 1 million users by July 2021. It also had the third-largest volume cryptocurrency exchange. FTX won investments from Sequoia Capital and SoftBank.

Bankman-Fried, in September that year, moved his business to The Bahamas, which he claimed was partly due to a crackdown by China on crypto.

Bankman-Fried, a Caribbean resident who had previously settled down, bought a multimillion-dollar waterfront penthouse.

This luxury property overlooks the area where Daniel Craig famously emerges from the water in Casino Royale. It was also used to house Bankman-Fried as well as up to nine of his FTX devotees.

Image Photo: AP

FTX was aggressively promoted under the leadership of SBF. The naming rights for an arena that the Miami Heat uses was purchased by FTX for $135m (PS110m).

Naomi Osaka, a tennis star, and Tom Brady, an NFL legend, entered into high-profile partnerships to the exchange. They appeared in TV ads and bought equity stakes in it.

During the Super Bowl, FTX spent millions to produce a 60-second spot with Larry David (Curb Your Enthusiasm) – a commercial that hasn’t aged well.

The advertisement showed David traveling through time, dismissing inventions such as the wheel and the fork, and zooming up to the present, where he was told that FTX is a “safe and simple way to enter crypto.”

The comedian claims in the ad that “Ehhhhhhh, I don’t think so.” “And I’m never wrong with this stuff. Never.”

The FTX bust

Bankman-Fried was able to cement his status by appearing on stage with ex-US president Bill Clinton, and ex-UK prime Minister Tony Blair in April.

SBF also supported Joe Biden’s campaign against Donald Trump, to the tune more than $5m (PS4.1m), making it the politician’s second largest financial backer.

Last month however, there were reports that FTX was in trouble due to its close ties with Alameda Research, Bankman-Fried’s first business.

FTT was FTX’s own token. It was created to provide discounts and incentives for customers. FTT tokens were worth PS2.65 billion, making it one the most valuable cryptocurrencies worldwide.

CoinDesk obtained a leaked document that revealed Alameda Research had significant amounts of FTT on its balance sheets, raising serious questions about the firm’s health.

Changpeng Zhao, an early investor in FTX and now the CEO of Binance, the largest exchange in the world, was astonished by this.

Image by Changpeng Zhao. Pic: AP

Zhao, who had been fighting with Bankman-Fried about the future of crypto regulation made a dramatic announcement that Binance would sell the FTT tokens it held on its books. This was a huge move worth $529m (PS430m).

FTT’s value plunged 95% since the crisis started, as a result of the announcement. Investors rushed to FTX in panic to withdraw their crypto.

It was estimated that $6bn (PS5.2bn), worth of withdrawal requests, were submitted in just three days. This pushed FTX into a financial panic.

Binance stated it would be interested in acquiring FTX, but one executive claimed it only took two hours to determine that the company was not worth saving.

FTX also filed for bankruptcy in Delaware that day, with liabilities of at minimum $10bn (PS8.2bn).

Users cannot withdraw their savings from the exchange at this time, and it could take years before they get their money back.

The situation got worse. Worried customers suffered another blow hours after the bankruptcy. Officials estimated that $600m (PS490m), was stolen from FTX.

Bankman-Fried caused anger by tweeting “WHAT HAPPENED” one letter at time in a thread that ran for several days. This led to criticisms that he was tone deaf and users desperate for updates.

Since then, allegations of shady business practices are being made. Reuters reports that FTX used customer money to pay losses at Alameda Research. Up to PS8bn was secretly moved. Bankman-Fried claimed he didn’t run Alameda’s operations, and that he “didn’t know what was happening”.

Moreover, there is a claim that Bankman-Fried created a “backdoor” in FTX’s accounting system that allowed money transfers to take place without the involvement of other executives. This was denied by the entrepreneur.

According to the Financial Times, $8bn (PS6.5bn), in customer funds had disappeared from FTX. The exchange’s new management is now taking over the reins.

John Ray is FTX’s new CEO. Ray was a former leader of Enron, an energy company that went through bankruptcy proceedings in 2000. This major company was dissolved after widespread accounting fraud and corruption.

In a bankruptcy filing, Ray stated that the severe condition of the crypto exchange was “unprecedented in my career.”

This situation is unimaginable, from compromised systems integrity to faulty regulatory oversight overseas, to the concentration and control in the hands a small number of inexperienced, unsophisticated, and potentially compromised individuals.

Later, a bankruptcy lawyer representing FTX’s new management said that Bankman-Fried had managed the company as his “personal fiefdom”. The business has since suffered “one the most sudden and difficult collapses in corporate America’s history”.

Bankman-Fried has repeatedly apologized, saying that he “f ***** up” with the way he managed the business. He has also given many high-profile interviews, despite being told not to by lawyers.

He also expressed concern that customers with crypto stored in FTX might not receive 20 to 25% of their savings back.

Continue reading: The founder of a bankrupt crypto company breaks his silence

Image Photo: ABC News via AP

He spoke Wednesday at The New York Times’ DealBook Summit for the first time since its dramatic collapse.

He stated that he had never tried to commit fraud against anyone. A month ago, I was enthusiastic about the potential of FTX. It was a growing, thriving business to me. It was amazing to see what happened in this month.”

SBF was also asked questions about his claims that he and his co-workers were a polyamorous bunch who had drifted into and out of relationships and attended drug-fuelled parties.

According to him, The New York Times reported that “When we had parties we played board games and 20 percent of people would drink three-quarters of a beer each.” The rest of us wouldn’t drink any. I did not see any illegal drug use in the area – at work or at these parties.

SBF said, speaking to Good Morning America: “I lived among a lot of monogamous couples while I was here, some who got married during their time here.” I haven’t heard of any polyamorous relationships in FTX.

Continue reading: Major cryptocurrency exchange FTX files for bankruptcy in the US

Image: Over the past month, the value of FTX’s FTT token fell. Pic by CoinMarketCap

What’s the future?

The FTX crash has affected every day investors as well as some of the most important US companies.

BlockFi, a crypto lending company, has been declared bankrupt by the collapse of this exchange. More may follow.

FTX’s future acquisitions of other businesses is still uncertain.

The shockwaves in crypto have been contained and have not spread to traditional markets.

Experts in the field agree that there will be real-world consequences.

Finimize’s global market analyst Eddie Donmez said that crypto businesses will likely face greater regulation.

Sky News interviewed him: “In the short term, the contagion was within the crypto market, and while the near-term has been very poor, terrible, for crypto, what I do believe is that it could serve as an acid test for regulation.

“While there are always bad actors in any industry that involves money, this could be a positive thing for crypto in the long-term.”

Donmez stated that he believes that the entire FTX episode should be listened to.

He said: “This story will be of interest to the general public because some large players have been tricked by a child playing computer games at investment meetings.

It shows that everyone has the potential to make mistakes from time-to-time.”

Katharine Wooller from the crypto insurance company Coincover said: “I believe this will bring regulation.” Although crypto purists may say no, it is against what they believe to be the core of crypto. But, there must be more regulation and not less.

Another blow to cryptocurrency credibility is the collapse of FTX. Bitcoin’s value has fallen by 75% in the past year.

Bitcoin enthusiasts argue that the company’s collapse shows investors why they should store crypto on their own devices and not trust it to exchanges.

There is little to no sign of improvement in this notoriously volatile sector. And if the second-largest cryptocurrency exchange in the world can go bankrupt, then no crypto company is safe.


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