NEW YORK (AP) – Sam Bankman-Fried received numerous plaudits as he rapidly achieved superstar status as the head of cryptocurrency exchange FTX: the saviour of crypto, the newest force in Democratic politics and potentially the world’s first trillionaire.
Now the comments about the 30-year-old Bankman-Fried aren’t so kind after FTX filed for bankruptcy protection on Friday, leaving his investors and customers feeling duped and many others in the crypto world fearing the repercussions. Bankman-Fried himself could face civil or criminal charges.
“Sam what have you done?,” tweeted host of the cryptocurrency podcast Bankless Sean Ryan Evans after the bankruptcy filing.
Under Bankman-Fried, FTX quickly grew to be the third-largest exchange by volume. The stunning collapse of this nascent empire has sent tsunami-like waves through the cryptocurrency industry, which has seen a fair share of volatility and turmoil this year, including a sharp decline in price for bitcoin and other digital assets. For some, the events are reminiscent of the domino-like failures of Wall Street firms during the 2008 financial crisis, particularly now that supposedly healthy firms like FTX are failing.
One venture capital fund wrote down investments in FTX worth over USD200 million. The cryptocurrency lender BlockFi paused client withdrawals on Friday after FTX sought bankruptcy protection. The Singapore-based exchange Crypto.com saw withdrawals increase this weekend for internal reasons but some of the action could be attributed to raw nerves from FTX.
Bankman-Fried and his company are under investigation by the Department of Justice and the Securities and Exchange Commission. The investigations likely centre on the possibility that the firm may have used customers’ deposits to fund bets at Bankman-Fried’s hedge fund, Alameda Research, a violation of United States (US) securities law.
“This is the direct result of a rogue actor breaking every single basic rule of fiscal responsibility,” said chief strategy officer Patrick Hillman at Binance, FTX’s biggest competitor. Early last week Binance appeared ready to step in to bail out FTX, but backed away after a review of FTX’s books.
The ultimate impact of FTX’s bankruptcy is uncertain, but its failure will likely result in the destruction of billions of dollars of wealth and even more scepticism for cryptocurrencies at a time when the industry could use a vote of confidence.
“I care because it’s retail investors who suffer the most, and because too many people still wrongly associate bitcoin with the scammy ‘crypto’ space,” said CEO of Swan Bitcoin Cory Klippsten who for months raised concerns about FTX’s business model. Klippsten is publicly enthusiastic about bitcoin but has long had deep scepticism about other parts of the crypto universe.
Bankman-Fried founded FTX in 2019, and it grew rapidly – it was recently valued at USD32 billion. The son of Stanford University professors, who was known to play the video game League of Legends during meetings, Bankman-Fried attracted investments from the highest echelons of Silicon Valley.
Sequoia Capital, which invested in Apple, Cisco, Google, Airbnb and YouTube, described their meeting with Bankman-Fried as likely “talking to the world’s first trillionaire”. Sequoia enthusiastically invested in FTX after one Zoom meeting in 2021.
“I don’t know how I know, I just do. SBF is a winner,” Sequoia Capital’s Adam Fisher, wrote in a profile of Bankman-Fried for the firm, referring to Bankman-Fried by his popular online moniker. The article, published in late September, was removed from Sequoia’s website.
Sequoia has written down its USD213 million in investments to zero. A pension fund in Ontario, Canada wrote down its investment to zero as well.
In a terse statement, the Ontario Teachers’ Pension Fund said, “Naturally, not all of the investments in this early-stage asset class perform to expectations.”
