Nov. 17, 2022
A few weeks ago, before the FTX scandal unfolded, I wrote an article asking whether or not Sam Bankfman-Fried (SBF) was the Devil.
Events over the last couple of weeks have revealed that he almost certainly is.
SBF hid behind the veneer of a nerdy vegan who drove an old Toyota Corolla. He practiced “effective altruism,” which is the belief that making tons and tons of money in order to influence the world for the better was a noble goal.
He made cringeworthy ads where he stated that he only wanted to become a billionaire so that he could give all of the money away to charity.
His cryptocurrency exchange FTX had exploded in size, rivaling Coinbase (NASDAQ: COIN) as one of the top 3 in the world.
Tom Brady and a host of other athletes and celebrities did business deals, endorsements and advertisements for it. The FTX logo sat atop the famed arena where the Miami Heat play.
He presented himself as a geeky “autist” (the self-deprecating term that many in gaming, tech and crypto use to describe themselves). And like many of them he purportedly took prescription amphetamines like Adderall.
He rarely dressed well. His hair was unkempt, and he seemingly spent most of his spare time playing League of Legends – the popular online battle arena game.
“He was one of us!” chanted autists around the world. Sam was their aspirational figure as he had amassed a $16 billion fortune in just a few years.
Forget about Elon…who actually engineered and built things for decades. SBF personified the easy path of quick wealth and instant gratification that lured so many into the crypto world.
But this image appears to have been a carefully constructed mirage masking a more sinister character than most could have imagined.
Who was this kid and where did he come from?
I’m doing a deep dive on SBF and Alameda in my next issue of Crypto Cycle but I’ll give a condensed version here.
In 2017, SBF and a friend supposedly made millions of dollars through arbitrage trading bitcoin with their investment firm, Alameda.
Later in 2019 they decided to launch their own exchange, FTX. The CEO of the crypto exchange Binance, Changpeng Zhao (CZ) initially purchased 20% of the company for $100 million.
CZ and SBF’s relationship soured and SBF ended up buying back CZ’s stake for $2 billion last year. Much of this payment was denominated in FTT (FTX’s exchange token.)
Life went on. But then out of the blue, something happened.
On November 6th, CZ announced that Binance would be selling all of its FTT holdings. CZ referenced the Terra Luna collapse as one reason why he didn't want to hold FTT anymore, as the Binance exchange lost a fortune holding Terra during its collapse earlier this year.
This announcement caused a bank run on FTX and a major liquidity crunch ensued. Many customers were reporting that they were unable to get their funds off of the platform.
Not even two days later, SBF announced that a letter of intent (LOI) had been issued for Binance to purchase FTX pending due diligence.
The markets recovered a little bit after this announcement. But on November 9th, Binance announced that after doing due diligence they determined that FTX was in too big of a bind to save, and bailed out of the deal.
They essentially looked at FTX and Alameda’s finances for a few hours and ran away screaming.
This sent the crypto market into a selling frenzy. Everyone was panic-selling, and the price of bitcoin dropped well below $16,000.
The value of FTT collapsed almost overnight.
Alameda Research had lost a lot of money in recent months giving out huge loans to failing crypto lending platforms like Voyager Digital. In order to shore up Alameda, it looks like at least $4 billion in FTX funds were transferred to them.
Worst of all, much of these funds were customer deposits.
CZ must have figured all of this out and severed ties while also going for the killshot to take out his biggest competitor in the crypto space.
He is now advocating for proof-of-reserves for crypto exchanges to ensure that customer deposits are safe. This is a great idea and Binance will likely lead the industry in doing this.
FTX was valued at $32 billion and SBF had a $17 billion fortune — all gone now…unless hidden in offshore accounts.
This story runs deep, and conspiracy theories abound.
SBF was a major Democratic Party political donor, and his mother was very active in
Democratic Party fundraising. FTX even ran the crypto fund that sent donations to Ukraine. Many speculate that much of those funds ended up being laundered back to politicians and insiders.
SBF donated $69 million to mostly Democratic politicians leading up to the midterms.
Caroline Ellison, the CEO of Alameda Research, was the daughter of Glenn Ellison – SEC chairman Gary Gensler’s former boss at MIT.
With Elon Musk now running Twitter, citizen journalism is taking off on the platform. This means that the truth regarding all of this will not be swept under the rug. Be prepared for a lot of revelations in the coming months.
Let’s hope the truth is uncovered and those responsible are held accountable.
This whole ordeal highlights the importance of self-custody and decentralization. Giving your money to centralized intermediaries defeats the purpose of cryptocurrency. “Not your keys, not your coins” rings truer now than ever.
Bitcoin remains unchanged and so does the DeFi infrastructure that has been built over the years.
Sleazy con men who want you to give them custody of your assets come around every bull market.
Don’t trust them.
Editor, Daily Profit Cycle