What’s the buzz about FTX?

Building wealth may be an extremely difficult endeavor, but losing it can happen almost effortlessly. Sam Bankman-Fried, previously celebrated CEO of crypto exchange FTX and crypto trading firm Alameda Research, is a prime example of how wealth can easily be gone with the wind. 

What’s his story? 

Once described as the “Next Warren Buffett,” and touted as crypto’s savior, there is, perhaps, no better confirmation of the risky volatility of crypto, than Bankman-Fried, who lost everything – his $16b fortune and his crypto companies – in the space of just a week. It all happened quickly: On November 2, Coindesk stated that FTX and Alameda Research were intertwined and exceedingly risky. Online rumors that FTX was bankrupt grew, and a wave of withdrawals followed. In response, Bankman-Fried tweeted that everything was great and that a rival was just spreading false information. A few days later, Bankman-Fried declared that rival cryptocurrency exchange Binance will buy FTX. But the deal quickly collapsed, in part due to impending federal probes into FTX. 

Was a crime committed? 

Confirming the suspicion of trouble, Bankman-Fried told investors on Wednesday night that FTX would fail if it does not access more capital. The following day, he declared Alameda Research would cease trading in order to raise funds for FTX. The same day, the Wall Street Journal revealed the origin of FTX’s troubles – FTX was using customer funds to place its own risky wagers. Even for an industry known for its volatility and immense risk, Bankman-Fried’s story, and that of FTX, are a shock even unto shock itself. Sadly, when disasters such as this happen, the casualties are usually far-flung. 

Far-reaching impact 

The industry’s reaction was instant. The price of Bitcoin has reached a two-year low. The native token for FTX (FTT) has declined by more than 97% from its peak. Beyond the crypto burst, Bankman-Fried’s misfortune will be felt elsewhere. To justify its $32b valuation of the exchange, venture capital firm Sequoia Capital claimed that FTX might have surpassed banking behemoths like Wells Fargo or Bank of America. But when it all came crashing down, even the investor was not spared. Counting its loss, Sequoia has written its $214m investment in FTX down to zero.

Admitting grave error, Bankman-Fried tweeted, “I f***ed up, and should have done better”.