In less than a week, the cryptocurrency billionaire Sam Bankman Fried has passed from the altar to the dust. His $32 billion company, FTX, went bankrupt, and he ended up at the center of investigations by the SEC and the US Department of Justice.
Before Martin Scorsese makes a film of it (I hope as good as "The Wolf of Wall Street", a story that closely resembles this one), get an idea of how this umpteenth perfect storm went.
A financial catastrophe, and damage to all cryptocurrencies
The empire built by 30-year-old Bankman-Fried, who until recently some have compared to giant financial giants like JPMorgan, crashed last week with an $8 billion "hole". Bankruptcy and disaster, with a gigantic damage to the reputation of the entire cryptocurrency sector, already heavily questioned.
That's not all, though. On the contrary: I have the impression that this is both a crucial point and the beginning of a real cataclysm.
Alameda and FTX
The relationship between Alameda and FTX was probably the core of what happened. Bankman-Fried founded the trading company in 2017 in Berkeley, California, not far from where he had grown up as the son of Stanford law professors. Soon the company was making millions of dollars by exploiting the inefficiencies of the Bitcoin market.
Two years after, in 2019, Alameda moved to Hong Kong, and also in Hong Kong FTX was born, a sort of exchange-bank for cryptocurrency investors.
This makes you understand how closely FTX and Alameda were linked. Alameda traded heavily on the FTX platform: it sometimes profited when other FTX clients lost money, which we could consider a major conflict of interest.
At times there seemed to be no barrier between the two companies, and perhaps officials will find that this was the case. Bankman-Fried himself, sources inside the two companies say, has been romantically linked to Caroline Ellison, the CEO of Alameda.
in 2021 another transfer (in a path that in hindsight gradually takes on the contours of an escape): Bankman-Fried has transferred FTX to the Bahamas. And he did so attracted by a regulatory framework that allowed him to offer risky trading options, bordering on legality in other countries.
Have those limits been crossed?
The Wall Street Journal reports details of a meeting CEO Caroline Ellison held last week with Alameda employees. In the meeting, Ellison reportedly explained the causes of the collapse: Alameda had taken out loans to make venture capital investments, among other expenses.
As the cryptocurrency market crashed this spring, lenders moved to withdraw those loans. But the funds Alameda had spent were no longer readily available, so the company would tap into funds from FTX customers to make payments. Estimates say Alameda may have used up to $10 billion.
The FTX leader almost makes it a mere distraction. In a recent interview, Fiume for the New York Times candidly says: "If I had been a little more focused on what I was doing, I could have grasped what was happening on the risk side." Many doubt that it is only this.
Like, I personally doubt that Bankman-Fried's personal and professional meltdown really took the cryptocurrency world by surprise.
The parable of the "magic circle"
In recent months, several warning signs have emerged about the dangers that were gathering on this company: FTX has grown abnormally and too fast not to produce consequences, or not to hide something.
There were several anomalies for all to see. One of all? Despite the billions that venture capital firms had invested in the company, FTX had no outside investors on the board. Bankman-Fried shared almost none of her choices, leading a sometimes cloistered existence.
Bankman-Fried prided himself on the fact that FTX only had a staff of around 300, much smaller than its main rivals, Binance e Coinbase: but in the end, the decision maker of a $32 billion company was a guy in a five-bedroom penthouse in the Bahamas, surrounded by a dozen people.
Together, the Bankman-Fried crew built an ambitious philanthropic operation, invested in dozens of other cryptocurrency companies, bought shares in trading firm Robinhood.
She promoted herself for hundreds of millions (naming an NBA basketball arena after her, sponsoring top-flight soccer referees in the US).
He has donated to political campaigns, given media interviews and offered Elon Musk billions of dollars to help fund the acquisition of Twitter by the tycoon. All the way up to the final crash: basically the fall of Berlin, but with palm trees.
Rest assured: someone in Hollywood has already commissioned a script.
Cryptocurrencies: now what?
While the sudden crash of one of the hottest cryptocurrency exchanges hasn't completely surprised the industry, it certainly has shocked them. And not a little. As was the case for the bankruptcy of Lehmann Brothers, there will be a before and after FTX, and they will be relatively hard times for all cryptocurrencies, already being put by more and more experts almost on a par with pyramid schemes.
Currently, authorities are grilling Bankman-Fried's business, freezing parts of the business and preparing to shut down operations.
When the fuss about FTX ends, however, we will find all the other questions about its founder intact. The harsh criticism of rivals who, like Changpeng Zhao (CEO of Binance) took their revenge by hastening his bankruptcy. The rapid ascent, the outrageous spending, perhaps the refusal to brake.
Another 30 year old later Elizabeth Holmes that does not throw in the towel, going beyond its own limits, and in fact denying them.
Bankman-Fried flaunts confidence: "People can say all the mean things they want about me online," she said. "In the end, what matters to me is what I've done and what I can do."
Even if one of the things he can do now is also end up in prison.