Sam Bankman-Fried’s downfall sends shockwaves through crypto

Sam Bankman-Fried quickly achieved superstar status as the head of cryptocurrency exchange FTX, earning numerous accolades: the savior of cryptocurrency, the newest force in democracy, and possibly the world’s first trillionaire.

Now, comments about the 30-year-old Bankman-Fried are less kind after FTX filed for bankruptcy protection on Friday, leaving his investors and clients feeling cheated while many others in the crypto world Worry about being affected. Bankman-Fried himself could face civil or criminal charges.

“Sam, what did you do?” tweeted Sean Ryan Evans, host of the cryptocurrency podcast Bankless, after filing for bankruptcy.

Under Bankman-Fried’s leadership, FTX quickly grew to become the third largest exchange by trading volume. The stunning collapse of the fledgling empire has sent a tsunami of waves through the cryptocurrency industry, which has seen quite a bit of volatility and turmoil this year, including sharp drops in the price of bitcoin and other digital assets. For some, these events are reminiscent of the domino-like failure of Wall Street firms during the 2008 financial crisis, especially now that supposedly healthy firms like FTX are collapsing.

A venture capital fund has written down its FTX investment worth more than $200 million. Cryptocurrency lender BlockFi suspended customer withdrawals on Friday after FTX sought bankruptcy protection. Singapore-based exchange saw an increase in withdrawals this weekend for internal reasons, but some of the action could be attributed to nervousness at FTX.

Bankman-Fried and his company are being investigated by the Justice Department and the Securities and Exchange Commission. The probe could focus on the company’s possible use of customer deposits to fund bets at Bankman-Fried’s hedge fund Alameda Research, in violation of U.S. securities laws.

“This is a direct result of rogue actors violating every basic rule of fiscal responsibility,” said Patrick Hillman, chief strategy officer at Binance, FTX’s biggest rival. Gave up after reviewing FTX’s accounts.

The ultimate impact of FTX’s bankruptcy is uncertain, but its failure could lead to the destruction of billions of dollars in fortunes and create more doubts about cryptocurrencies at a time when the industry could use a vote of confidence.

“I’m concerned because it’s retail investors who suffer the most, and there are too many who still wrongly associate Bitcoin with the ‘crypto’ space of scams,” said Cory Klippsten, CEO of Swan Bitcoin, who has been working for several months. has been concerned about FTX’s business model. Klippsten is openly enthusiastic about Bitcoin, but has long been deeply skeptical of the rest of the crypto world.

Bankman-Fried founded FTX in 2019, and it has grown rapidly — most recently valued at $32 billion. Bankman-Fried, the son of a Stanford professor known for playing the video game “League of Legends” during conferences, has attracted investment from the highest levels of Silicon Valley.

Sequoia Capital, which has invested in Apple, Cisco, Google, Airbnb and YouTube, said their meeting with Bankman-Fried was likely to be “talking to the world’s first trillionaire.” After a Zoom meeting in 2021, Sequoia invested enthusiastically in FTX.

“I don’t know how I knew it, I just knew it. SBF is the winner,” Sequoia Capital’s Adam Fisher wrote in the firm’s Bankman-Fried profile, referring to his popular online moniker Bankman-Fried. The article, published in late September, has been removed from Sequoia’s website.

Sequoia Capital has written down its $213 million investment to zero. A pension fund in Ontario, Canada, also wrote down its investments to zero.

“Of course, not all investments in this early-stage asset class have lived up to expectations,” Ontario Teachers’ Pension Fund said in a brief statement.

But until last week, Bankman-Fried was considered the industry’s white knight. Whenever there is a crisis in the crypto industry, Bankman-Fried is likely to fly in with a rescue plan. When online trading platform Robinhood ran into financial trouble earlier this year — collateral damage from falling stock and cryptocurrency prices — Bankman-Fried stepped out to buy a stake in the company as a show of support.

This summer, when Bankman-Fried acquired the assets of bankrupt crypto firm Voyager Digital for $1.4 billion, it was a relief for Voyager account holders whose assets had been frozen since the bankruptcy. That rescue is now being questioned.

As the king of cryptocurrencies, his influence began to seep into politics and popular culture. FTX has purchased major sports sponsorships through Formula Racing and purchased naming rights to the Miami Arena. He pledged to donate $1 billion to Democrats this election cycle—he actually gave tens of millions—and invited prominent politicians like Bill Clinton to speak at FTX conferences. Football star Tom Brady invested in FTX.

Bankman-Fried had been the subject of some criticism prior to FTX’s collapse. While his headquarters in the Bahamas primarily operates FTX out of U.S. jurisdiction, Bankman-Fried has become increasingly vocal about the need for more regulation of the cryptocurrency industry. Many proponents of cryptocurrencies oppose government oversight. Now, the collapse of FTX may help create stricter regulations.

One of those critics is Binance founder and CEO Changpeng Zhao. The feud between the two billionaires spread on Twitter, where Zhao and Bankman-Fried together have millions of followers. Zhao helped initiate the doomed FTX withdrawals when he said Binance would sell its stake in FTX’s cryptographic token, FTT.

“(asterisk)(asterisk)t shows what…it will be the cryptocurrency’s fault (not one person’s fault,” Zhao tweeted on Saturday.


Journalists Michael Balsamo in Washington and Cathy Bussewitz in New York contributed.

Ken Sweet, AP

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