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Sam Bankman-Fried’s ‘Emperor’ Aura Makes Demise a Crypto Blast

Sam Bankman-Fried had to be different from the everyday crypto types. He was a child prodigy with a supernatural gift for mathematics.

Sam Bankman-Fried had to be different from the everyday crypto types. He was this child prodigy with a supernatural gift for math who quickly built a crypto empire and then cleverly expanded it during the industry’s worst collapse this summer.

So the sudden collapse of its crown jewel – the crypto exchange FTX.com, which now needs a bailout from its main rival, Binance Holdings – has left crypto investors in stunned disbelief.

If people have learned anything from the industry’s spectacular springtime collapses — including the TerraUSD stablecoin, hedge fund Three Arrows Capital and lender Celsius Network — it’s that the ties binding this burgeoning ecosystem are as pervasive as they are delicate.

Read more: Bankman-Fried Bows to Binance Rescue as FTX Buckles

But while FTX was part of that, it seemed like more than just an exchange: It was sort of a one-stop shop for crypto boosterism, with its financial backing, market-making power, lobbying power in Washington, and penchant for offering its own bailouts. reached most corners of the industry. The question now is whether the big SBF can be done with this quickly – in no more than a handful of days – what does that say to anyone else in the once-hot industry, now experiencing a protracted defeat that wiped $2 trillion from market value?

“I think if this bear market has proven anything, it’s that the emperor has no clothes on,” said Marc Weinstein, partner at crypto firm Mechanism Capital Ventures. “Even seasoned institutional investors can be wiped out by investing in hot deals at unreasonable valuations in a bull market.”

Fears over FTX and the undetermined fate of its sister company, Alameda Research, engulfed the already battered space on Tuesday. And the jitters translated into losses of more than 10% for Bitcoin and even bigger declines elsewhere in the crypto market. The magnitude of the declines may depend on how much contagion, if any, the sudden collapse of FTX will have in the market.

On the edge

The influence of FTX and Bankman-Fried is even greater than that of Three Arrows Capital, whose collapse just months ago caused a wave of pain in the industry. So the lack of details about Binance Holdings’ possible acquisition of FTX, and the speed at which it was put together, put the crypto world on edge. Some FTX investors learned about the deal via Twitter, according to people familiar with the matter. These investors are unsure whether they will receive funds if the deal with Binance goes through.

The list of losers from the collapse includes investors in the Bankman-Fried stock exchange, which was valued at nearly $32 billion in January. These include blue-chip names such as SoftBank Group Corp.’s Vision Fund, Ontario Teachers’ Pension Plan, Singaporean equity fund Temasek Holdings Pte., hedge fund Tiger Global Management and Lightspeed Venture Partners. After the January fund-raising, Bankman-Fried told Bloomberg that the funds would likely go into mergers and acquisitions, with potential targets such as payment firms, NFT-focused firms, and the metaverse.

Other companies affiliated with Bankman-Fried also have strong ties to other major industry players, and FTX’s struggles have cast a veil of uncertainty on all of them.

FTX.US, the US affiliate of the exchange, which is not included in the preliminary Binance deal, cryptocurrency lender BlockFi Inc. provided with a $400 million revolving credit with the option to buy the company in its entirety. Alameda Research, a crypto trading company also co-founded by Bankman-Fried, offered Voyager Digital a $485 million loan that failed to save the crypto brokerage from bankruptcy. FTX.US later won an auction for Voyager Digital’s assets.

Pain points

Industry investors have identified Alameda as a potential pain point for Bankman-Fried going forward. The company is an active borrower in the crypto industry and reports that the company kept many of its assets in FTX’s FTT token, which has fallen sharply in price and likely contributed to the Binance deal. Although Bankman-Fried has said that FTX and Alameda are separate companies, the close relationship between the two has come under fire.

“The most obvious question is what happens to Alameda and the debt they owe,” said Matt Walsh, founder of crypto venture capital firm Castle Island Ventures.

Bankman-Fried moved out of Alameda last year, but is estimated to own nearly the entire company and over 50% of FTX. Walsh said this kind of structure wouldn’t have flown in a more regulated market and that the Binance deal could help solve that problem.

“It would never be feasible for the owner of an exchange to also own their own trading firm trading on that exchange,” he said.

Alameda Chief Executive Officer Caroline Ellison declined to comment on the Binance-FTX deal and its impact on Alameda.

Overall, Walsh said FTX’s floundering “will vastly increase regulators’ focus on all market participants” and draw more attention to whether tokens like FTT are unregistered securities.

Arthur Breitman, the co-founder of the Tezos blockchain, said in a statement that it will be interesting to see if an acquisition of FTX by Binance will remove support from major blockchains. He noted that FTX is a major funder of the Solana blockchain, while Binance has its own Binance Smart Chain.

“I am curious if FTX will continue to support Solana under the new leadership, or if they will move to BSC,” he said. The Solana token, in particular, took a beating on Tuesday, falling 23%.

Avichal Garg, co-founder and partner at crypto venture capital firm Electric Capital, said the potential deal shows how “the incumbents in this space can be disrupted very quickly” and shows how Binance’s Changpeng “CZ” Zhao makes its money. well managed.

“There’s a great lesson for founders here about running a business,” he said.

If, in running that business, CZ ultimately decides not to go through with the FTX acquisition, there could be even more turbulence.

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