FTX: Sam Bankman-Fried: The rise and fall of a cryptocurrency prodigy

Sam Bankman-Fried owned an estimated $22.5 billion fortune before he was 30. Only Mark Zuckerberg had done better at that age thanks to a money-making machine called Facebook. But after he turned 30, everything changed. Now that FTX has filed for bankruptcy, this Californian and son of two Stanford University law professors is no longer even a member of the billionaires’ club. His dizzying fall has a lot to do with the world in which he built his wealth – cryptocurrency – where time and money run at a different speed. It’s fast and volatile, and always demands more.

But SBF, as the FTX founder is known, never seemed hell-bent on accumulating wealth for himself. Nor is he an ardent libertarian like many of the anti-taxation Bitcoin faithful. SBF believes that the rich, including himself, should pay more taxes. He is loath to proclaim cryptocurrency omnipotence as others do, and instead espouses a pragmatic approach to make them profitable. SBF is a proponent of “effective altruism,” a philosophy that advocates maximizing the good you can do for others with your money. He even promised to give away most of his fortune during his lifetime. “My goal is to have impact,” he said in an interview with Forbes magazine last year.

And for a while, it seemed that his generous philosophy could indeed have lasting impact. At its peak, his fortune stood at $26.5 billion. But much of that fortune was tied to his FTX shareholdings and the FTT token, both of which swiftly collapsed from a liquidity crisis that triggered massive withdrawal requests by customers panicked by the prospect of losing everything.

SBF’s ascent was equally swift. The young man founded quantitative trading firm Alameda Research in 2017, and quickly added zeros to his bank account after exploiting a seemingly obvious opportunity. “Bitcoin was trading for $10,000 on a US exchange and $11,000 on a Japanese exchange. You take $10 million… you buy $10,000, you sell at $11,000, you make a million dollars, and we were able to do that every weekday,” he explained in a video.

He claims to have made $20 million that way and used the money two years later to create FTX in Hong Kong, a trading platform for buying and selling Bitcoin and other cryptocurrencies. FTX became one of the largest cryptocurrency exchanges in the world and was once valued at $40 billion. In September 2021, he moved his headquarters to the Bahamas, where he lives in a penthouse with 10 friends, including some who run his businesses. Although his standard of living is clearly better than most, he eschews luxuries like expensive watches and sports cars, and instead drives a $20,000 Toyota Corolla.

A physics major who graduated from the prestigious Massachusetts Institute of Technology (MIT), SBF is a vegan and committed animal protection and climate change activist. He grew up loving the Harry Potter books, the San Francisco Giants baseball team, and video games like Starcraft and League of Legends.

Until recently, SBF’s life seemed to be a video game that he was always winning. One of his close colleagues tells the story of how he watched SBF play League of Legends while simultaneously engaged in a Zoom video meeting with investors from Sequoia Capital. His multitasking skill was such that SBF was able to persuade the investors to write a check that day and also win the video game. Sequoia Capital recently announced that it was writing down its $210 million FTX investment to zero.

Although he is now the visible face of a corporate crisis that may wipe him out and cause heavy losses for his clients, SBF was once the second richest man in the crypto world after Binance CEO, Changpeng Zhao. In August, Fortune magazine called him the next Warren Buffett, comparing the Berkshire Hathaway tycoon’s $5 billion rescue of Goldman Sachs during the Great Recession, to SBF’s recent life-saving aid to a few companies embattled by the ongoing crypto winter. Other pundits went further back in history and called him a modern-day John Pierpont Morgan, the legendary financier who was pivotal in saving the US financial system during the panic of 1907 when Wall Street collapsed under an avalanche of bank and other business failures.

But the white knight who used FTX resources to bail out embattled crypto firms Voyager Digital and BlockFi suddenly found himself cornered. As he appealed on social media and elsewhere for help, he openly acknowledged his own responsibility. “I fucked up,” he crudely admitted in a series of messages explaining what happened, and he apologized to customers who couldn’t get their money out. But his public mea culpas couldn’t stem the tide that ultimately drowned the company and caused hundreds of thousands of small investors who trusted in FTX to lose money.

Millions in political donations

Just a few days ago, before the storm, SBF’s Twitter posts had a very different feel. In the run-up to the midterm elections, he talked about donating $40 million to Republican and Democratic candidates who were committed to preventing new pandemics and promoting cryptocurrency-friendly regulations.

His $5 million donation to Joe Biden’s presidential campaign several years ago attracted media attention as the second largest behind Michael Bloomberg’s $56 million contribution. And he talked about raising the stakes even higher in 2024. In a May podcast interview, SBF hinted at making a record-breaking billion-dollar donation to the 2024 Democratic candidate for president, especially if Donald Trump became the Republican nominee.

That will never happen now. Binance backed out of its FTX buyout bid after reviewing the company’s books, and the US Securities and Exchange Commission (SEC) launched an investigation into potential misuse of client funds for unauthorized risk operations. It was too much for the young man who once paid $135 million for the naming rights to the arena where the NBA’s Miami Heat play their home games. Everything the precocious SBF had built in the cryptocurrency world had collapsed, and he has joined the undesirable ranks of failed business leaders like Do Kwon, the South Korean creator of the defunct Luna cryptocurrency. It’s a much less flattering comparison than Warren Buffett and J.P. Morgan.