The boy wonder of cryptocurrencies watched as his empire vaporized nearly overnight, leaving depositors scrambling and investigators taking a look.
It wasn’t long ago that Sam Bankman-Fried was a king of the crypto world.
Just six months ago, CEOs, celebs and world leaders like Bill Clinton and Tony Blair flocked to him, gathering at a Davos-like conference he hosted in the Bahamas where he lives as one of the most outspoken evangelists for the power of the blockchain.
Fast forward to Sunday and Bankman-Fried’s crypto empire came crashing down, the victim of an old-fashioned bank run that quickly exposed the weaknesses of the new finance system he had championed.
Almost overnight, Bankman-Fried’s cryptocurrency exchange, FTX, had gone from being valued at $32 billion to worthless, leaving scores of investors scrambling to get their deposits back and triggering probes in the U.S. by the Securities and Exchange Commission, the Commodities Futures Trading Commission and the Department of Justice, according to reports.
On Thursday, the 30-year-old Bankman-Fried took to Twitter to level with his clients.
“I fucked up, and should have done better,” he wrote.
A very rapid rise
It took less than five years for Bankman-Fried to build a personal fortune that was estimated at its highest point to be more than $26 billion, making him among the richest people in the world.
His schlubby, boyish appearance — ill-fitting t-shirts, gym shorts, and a mop of curly hair — made him look more like a college student ripping bong hits in the basement of a frat house than a finance guru, but fit nicely with the anti-establishment ethos that appealed to crypto enthusiasts.
The son of law professors at Stanford University, Bankman-Fried was a wunderkind from an early age. He studied physics and mathematics at the Massachusetts Institute for Technology.
After a stint as an ETF trader for Jane Street Capital, a highly respected Wall Street firm that is known for attracting genius quantitative traders, Bankman-Fried became interested in the concept of effective altruism, a philosophy that focuses on using reason and evidence to find solutions that benefit the most people possible. In 2017, he launched Alameda Research, a quantitative trading firm focused on digital currencies.
Over the next year, he began building his fortune through arbitrage trading of Bitcoin BTCUSD, 10.51% between exchanges in the U.S. and Japan, where prices were often slightly higher. In 2019, Bankman-Fried launched the crypto exchange FTX.
The timing was fortuitous: as the COVID-19 pandemic spread across the globe the following year, interest in cryptocurrencies among people exploded. FTX took off and brought in the big-name celebrity endorsers and partners, like professional athletes Tom Brady and Steph Curry.
Bankman-Fried soon found himself feted by some of the biggest institutions in finance, attracting investment from the biggest names on Wall Street and beyond like Softbank 9984, -2.65% Group, Sequoia Capital, Blackrock BLK, 11.56%. Tiger Global Management and Thoma Bravo. He even raised money from billionaire hedge fund legends Paul Tudor Jones and Israel Englander.
Soon, FTX was among the biggest players in the industry.
The face of crypto
Despite his ballooning wealth, Bankman-Fried maintained the appearance and lifestyle of a teenage gamer. He moved to the Bahamas, where he reportedly lived in a penthouse apartment with 10 roommates.
On Zoom calls, he would often play video games while talking — his favorite game being League of Legends. Profiles of him often noted that he kept a bean bag just feet from his desk to sleep on.
What set Bankman-Fried apart from other crypto tycoons, was his professed interest in working with regulators to create a more robust framework around the nascent industry and treat it more like a traditional finance network.
To that end, Bankman-Fried appeared before Congress to try to explain to skeptical U.S. lawmakers how the crypto industry worked. He also said he welcomed regulation, not always a popular position in the crypto world.
“FTX believes [government agencies] could play an even more prominent role in the digital-asset ecosystem and bring greater investor protections by closing some regulatory gaps,” he said before a senate panel in February. “FTX believes that such efforts would combine the best aspects of traditional finance and digital-asset innovations.”
Bankman-Fried even put his great wealth to play in politics, becoming a major campaign donor for the Democratic party. In 2020, he was one of President Joe Biden’s largest single donors and spent nearly $40 million on political campaigns this year for the midterm elections, according to campaign filings.
As cryptocurrencies have experienced significant declines in prices this year, triggering the collapse of several operations, Bankman-Fried arose as a savior, buying up several failing partners as positioning himself as a kind of Robin Hood for the industry.
A swift collapse
For as fast a rise to the top of the world that Bankman-Fried enjoyed, the fall was just as rapid.
On Sunday, Changpeng Zhao, the CEO of FTX’s competitor, Binance, and an archrival of Bankman-Fried’s, announced on Twitter that his firm, the world’s biggest cryptocurrency exchange, was liquidating its sizable holdings of FTT, the coin issued by FTX, “due to recent revelations that have come to light.”
Bankman-Fried accused Zhao of spreading false rumors. But the damage was done.
Binance’s move triggered a massive selloff with customers seeking to redeem some $5 billion in deposits. FTX didn’t have it and redemptions froze up.
On Tuesday, Bankman-Fried announced that FTX had reached a tentative agreement to be acquired by Binance, due to a “significant liquidity crunch.” The turmoil set off broad declines among several of the most popular cryptocurrencies and even spilled into the world of traditional finance, sending markets tumbling.
The next day, the chaos increased, with reports that FTX and Bankman-Fried were under investigation by several U.S. agencies. By the end of the day, Binance said it was walking away from the deal because due diligence had revealed that “the issues are beyond our control or ability to help.”
Binance’s deal seemed like the only thing preventing FTX from potentially collapsing. “At some point, I might have more to say about a particular sparring partner,” Bankman-Fried tweeted on Thursday. “For now, all I’ll say is: well played; you won.”
Also on Thursday, the Wall Street Journal reported that Bankman-Fried had been using some customer deposits to fund risky bets by his Alameda Research firm, setting FTX up for collapse.
With the Binance lifeline gone and with few options available, Bankman-Fried told investors he needed $8 billion or more to plug the hole in FTX’s books, according to reports.
On Twitter, Bankman-Fried said he would focus all his efforts on making sure depositors got their money back. He also tried to explain FTX’s collapse, saying “a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users’ margin. I thought it was way lower.”
Said Bankman-Fried: “My #1 priority–by far–is doing right by users,” he wrote. “Right now, we’re spending the week doing everything we can to raise liquidity. I can’t make any promises about that.”