THE COLLAPSE OF SBF’S CRYPTO EMPIRE
And you thought we were through? This debacle is undoubtedly one for the books (and TV series). Capping a week full of wild speculations, eye-popping tweets, shocking revelations and crashing prices, FTX, one of the largest cryptocurrency exchanges in the world worth $32 billion at the beginning of the year, its U.S. unit, FTX US, and Alameda Research, the trading house at the heart of the shakeup,–all owned by now-former billionaire Sam Bankman-Fried (a.k.a SBF)–filed for Chapter 11 bankruptcy in Delaware Friday. The filings indicate more than 100,000 creditors, along with liabilities and assets each in the range of $10 billion to $50 billion. The fallen crypto mogul said Alameda would be winding down, and he resigned as chief executive officer of FTX Group. He is being replaced by John J. Ray III, a lawyer known for cleaning up disgraced energy firm Enron. Cryptocurrency markets, now down 20% over the past week, tumbled after the Friday announcement, bringing bitcoin to two-year lows of $16,721.
Here’s a brief timeline of the crisis and Forbes’ coverage:
• November 2: CoinDesk publishes an article revealing that at least a third of Alameda’s $14 billion balance sheet is in FTT, the tokens FTX invented.
• November 6: Chagpeng Zhao (widely known as CZ), CEO of rival exchange Binance, tweets that “due to recent revelations that have come to light” his firm will be liquidating at least $584 million worth of FTT, received as part of Binance’s exit from FTX last year.
• November 7: Bankman-Fried apparently shoots back at Zhao: “a competitor is trying to go after us with false rumors. FTX is fine. Assets are fine,” he writes in a now-deleted tweet. FTX sees massive withdrawals.
• November 8: FTT plummets more than 30% to levels not seen from last February. FTX stops processing clients' requests for withdrawals. In the afternoon, Zhao tweets: “FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI [letter of intent], intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD [due diligence] in the coming days”. He adds, “Binance has the discretion to pull out from the deal at any time." In a separate tweet, SBF confirms the deal and admits to liquidity issues.
• November 9: FTT’s losses over a five-day span tick up to 85% of its value. Bitcoin hits a two-year-low; other cryptocurrencies and linked stocks also sink. SEC, CFTC scrutinize the relationship between FTX, FTX US and Alameda. Binance backs out of the acquisition, adds FTX’s liquidity “issues are beyond our control or ability to help.” Bankman-Fried reportedly seeks emergency funding to cover a shortfall of up to $8 billion; breaks radio silence, offering perhaps the first on-the-record comment of the past 24 hours over wait for it…Forbes’ plan to drop him from our ranking of the world’s billionaires.
• November 10: Stablecoin tether slips below its $1 peg. SBF posts a Twitter thread, apologizing and promising to “take responsibility, and do what I can” to “do right by users,” investors and his employees.” Reuters publishes a report suggesting that FTX had sent at least $4 billion, including customers’ funds, to Alameda to help the trading firm cover its losses from crypto implosions in May and June.
• November 11: FTX, FTX US and Alameda Research file for bankruptcy.
I am skipping quite a bit here, but you got the gist. When SBF bailed out a string of struggling crypto firms earlier this year, many scratched their heads but hailed the 30-year-old as the next coming of J.P. Morgan, even calling him crypto’s lender of last resort. The media darling and a frequent guest on Capitol Hill, Bankman-Fried cast himself as the shield that would protect customers even if it hurt his businesses’ own bottom lines. He was extremely successful in seducing media, investors, politicians, top-tier advisors and blue-chip businesses––from Sullivan & Cromwell and Skadden to Stripe, AWS and Deloitte, to name a few—with untied shoes, surprising cynicism about the industry that made him a multi-billion dollar fortune and talk of the betterment of the word via philanthropy known as effective altruism. In hindsight, the red flags were plentiful. Most of us missed them.
Nervously awaiting the signs of contagion, some market veterans call the collapse of Bankman-Fried’s empire a “Lehman moment.” Indeed, there are similarities. But absent central banks and companies capable and willing enough to save the day, the industry will have to figure out a way to hold the ground on its own. |
