9 min read
The Rise and Fall of Sam Bankman-Fried: An In-Depth Look at the Controversial Crypto Billionaire
The fall of Sam Bankman-Fried and his cryptocurrency exchange, FTX, has been a dizzying and dramatic story of risks, rewards, and beanbags.
By: Flagship Team
Bankman-Fried, a former MIT undergraduate and effective altruist, made his fortune through cryptocurrency arbitrage with his trading firm Alameda Research. Then, in 2019, he launched his crypto exchange, FTX, which quickly gained a reputation for allowing riskier trades and became one of the largest in the industry. By 2022, Bankman-Fried was worth $22.5 billion and had positioned himself as a beacon for other companies, bailing out the bankrupt crypto broker Voyager Digital and launching his venture fund FTX Ventures, which managed around $2 billion in assets.
However, despite appearing to weather the turbulent year of 2022 in the crypto industry, FTX collapsed into bankruptcy in November of that year, leaving many investors and registered users wondering if they would ever see their savings trapped in FTX's digital wallets again. The fall of FTX also had ripple effects on Bankman-Fried's other endeavors, including his philanthropic efforts through the FTX Foundation and his political ambitions as a significant donor and key liaison for Congress and the White House on the matter of crypto regulation.
So, what led to the collapse of Bankman-Fried's $32 billion empire? And what does it mean for the future of cryptocurrency and effective altruism?
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The Rise of Sam Bankman-Fried and FTX
Bankman-Fried's journey to becoming a multibillionaire in just five years began at MIT, where he studied physics and math. However, his involvement in the effective altruism movement, which seeks to do the most practical things to have the most positive impact on the world, set him on the path to riches. Inspired by this ideology, Bankman-Fried decided to pursue a banking career to make as much money as possible to give back to good causes.
After a short stint at the trading firm Jane Street in New York, Bankman-Fried became bored and decided to experiment with Bitcoin. He noticed the variations in the value of Bitcoin across different cryptocurrency exchanges. So he started arbitraging - buying Bitcoin from places selling it cheaply, and selling to other sites where it was trading for more. After a month of making modest profits, he teamed up with some college friends to start a trading business called Alameda Research. The company took months to perfect, but eventually, Bankman-Fried and his team could move money in and out of Bitcoin and other cryptocurrencies quickly and profitably.
By 2019, Alameda Research was turning enough profit for Bankman-Fried to launch his cryptocurrency exchange, FTX. Part of FTX's appeal to investors was its willingness to allow riskier trades, such as highly leveraged bets. This, combined with Bankman-Fried's reputation as a brilliant disruptor in the crypto industry, helped FTX become one of the largest exchanges in the world.
The exchange was notable for allowing riskier trades than other exchanges, including highly leveraged bets. As a result, FTX became one of the largest and most popular cryptocurrency exchanges in its first few years of operation, with an estimated 1.2 million registered users and billions of dollars in daily trading volume.
However, in 2022, FTX faced financial difficulties and was forced to reduce the amount of leverage it offered to clients. Despite these challenges, Bankman-Fried appeared to be positioning himself to keep the industry from collapsing, bailing out bankrupt crypto broker Voyager Digital and launching his venture fund FTX Ventures, which managed around $2 billion in assets.
Though 2022 was an incredibly turbulent year for crypto, Bankman-Fried seemed to remain unscathed and poised to keep the industry from falling apart. He positioned himself as a beacon for other companies. He gave the crypto lender BlockFi a $250 million line of credit; he bailed out the bankrupt crypto broker Voyager Digital. This year, he also launched his venture fund, FTX Ventures, which manages about $2 billion in assets. It looked like Bankman-Fried would come out of the crypto winter stronger than his competitors, primarily by turning someone else’s loss into his opportunity.
Bankman-Fried appeared to be settling comfortably onto the throne of influence. In June, he signed the Giving Pledge, joining the ranks of other billionaire mega-philanthropists like Warren Buffett, Bill Gates, and MacKenzie Scott in a commitment to give away at least 50 percent of his wealth. “A while ago I became convinced that our duty was to do the most we could for the long run aggregate utility of the world,” Bankman-Fried wrote in his pledge letter. In some ways, signing this pledge was repeating himself — he had already promised to give away 99 percent of his fortune. In February 2022, he founded the FTX Foundation, which supported causes such as improving animal welfare and fighting global poverty. He also funded research and projects that would improve “humanity’s long-term prospects” through the foundation’s Future Fund. On November 10, in light of FTX’s collapse, all the members of the Future Fund resigned.
He was just 30 years old and making waves in the political world. Bankman-Fried was one of the biggest individual donors to Joe Biden in 2020 and the sixth largest individual donor overall for the 2022 midterm cycle, contributing almost $40 million to various candidates and PACs, including a $1 million donation to Beto O’Rourke’s failed campaign for Texas governor. One of Bankman-Fried’s principal aims was getting more political investment in pandemic preparedness — he spent millions backing the congressional run of effective altruist Carrick Flynn, whose platform prioritized pandemic prevention; Flynn lost his primary race. In short, Bankman-Fried had been building a bona fide political machine, hiring staff to advise him on his various interests, which included crypto regulation. He was a media patron, too, investing in the new news site Semafor and awarding grants to other publications.
Sam Bankman-Fried was a key liaison for Congress and the White House on cryptocurrency regulation. He even testified in front of Congress in 2022, discussing his thoughts on what could be done to provide federal oversight of the industry. According to the Los Angeles Times, Bankman-Fried spent a lot of time talking with members of Congress about "constructive things" that could be included in cryptocurrency policies.
Critics and skeptics have argued that Bankman-Fried's presence in Congress was more about ensuring that cryptocurrencies would fall under the oversight of the Commodity Futures Trading Commission (CFTC) rather than the Securities and Exchange Commission (SEC), as the CFTC is seen as the less powerful of the two. Some have speculated that this was because Bankman-Fried wanted to avoid the more stringent regulations that would come with SEC oversight.
Regardless of the motivations behind his involvement in the regulatory process, it is clear that Bankman-Fried played a significant role in shaping the way that cryptocurrencies are regulated in the United States. As the former CEO of the cryptocurrency exchange FTX, he had a unique perspective on the industry and its challenges. As a result, his insights and recommendations were likely influential in developing policies that would ultimately impact the entire crypto industry.
Fall From Grace
The fall of FTX, a cryptocurrency exchange founded by Sam Bankman-Fried, has been a tumultuous and dramatic event. In just a few short years, Bankman-Fried had built up an empire worth billions of dollars, but it all came crashing down in 2022. At its collapse, FTX had an estimated 1.2 million registered users using the exchange to buy cryptocurrency tokens such as Bitcoin and thousands of others. From large traders to everyday crypto fans, many wondered if they would ever get back their savings trapped in FTX's digital wallets.
The fall of FTX was a financial disaster for those who lost money and had far-reaching consequences for Bankman-Fried and the cryptocurrency industry as a whole. Bankman-Fried had been a significant player in the world of crypto, positioning himself as a leader and a disruptor in the industry. He had even signed the Giving Pledge, committing to giving away at least 50% of his wealth. In addition, he founded the FTX Foundation, which supported causes such as improving animal welfare and fighting global poverty.
However, the collapse of FTX and the resulting financial losses for investors led to a moral reckoning for Bankman-Fried and the principles of effective altruism he espoused. The Future Fund, a part of the FTX Foundation that funded research and projects aimed at improving “humanity's long-term prospects,” saw its members resign in the wake of the collapse.
In addition to the personal and financial consequences of the fall of FTX, the event has also impacted the cryptocurrency industry as a whole. The collapse of such a prominent and influential exchange has raised questions about the stability and reliability of the crypto market. Moreover, it has led to calls for greater regulation and oversight.
It has also led to a moral reckoning for Bankman-Fried and the effective altruism movement, of which he was a prominent member.
Effective altruism is a community of people who are,
“trying to figure out what practical things you can do with your life to have as much positive impact as you can on the world,”
according to Bankman-Fried. He had long been a vocal advocate for the movement, even going so far as to sign the Giving Pledge, in which he promised to give away at least 50% of his wealth.
However, in the wake of FTX's collapse, many are questioning whether Bankman-Fried's actions lived up to the values of effective altruism.
It is clear how much power billionaires have when so many people across numerous industries are affected by one person's financial collapse. It also demonstrates the need for a thorough investigation into that influence. How much credibility should we accord a sales pitch?
In response to claims that the cryptocurrency market is full of danger or scams, Bankman-Fried has defended the sector in general and his exchange in particular.
“He asserts that FTX is more effective than the traditional financial system because it operates an honest market, investigates the backgrounds of its customers, and purchases carbon credits to offset its emissions.” At this point, we know better.
Before the severity of FTX's financial disorder became apparent on November 7, Bankman-Fried tweeted that everything was fine. Assets are good, the man wrote. “To cover all client holdings, FTX has enough; even in treasury securities, we never invest client money.” But that wasn't the case after all. Since then, he has removed those tweets. Following the collapse of FTX, Bankman-Fried conducted a Twitter direct message interview with Future Perfect reporter Kelsey Piper. He revealed a cynical ethical perspective that appeared to run counter to the more nuanced perspectives of right and wrong he had previously discussed in the press. He wrote, “Man, a lot of the dumb shit I said.” “It's not really true.”
According to his theory,
"a person's virtue largely depends on perception; it has more to do with whether they are viewed as winners or losers than with their actual behavior." But, unfortunately, everyone acts as though perception corresponds to reality, "He wrote in the open, occasionally shocking, conversation. "It does not; some of the greatest heroes of this decade will never be recognized, and some of its most adored figures are essentially shams."
Bankman-Fried's arrest and the downfall of FTX raise serious questions about the scrutiny of the ultra-rich and the influence they wield. His case is reminiscent of other high-profile fraudsters like Elizabeth Holmes and Bernie Madoff. Still, the fact that a single person's financial ruin impacts so many people in different industries highlights the need to examine the actions and motivations of billionaires carefully. It also serves as a cautionary tale about the dangers of blindly trusting in the sales pitch of a charismatic individual, regardless of their apparent virtue.
Given the current legal proceedings, it is difficult to predict what the future holds for Bankman-Fried. He may face the consequences for his actions about the collapse of FTX and any wrongdoing that may have occurred. It is also possible that Bankman-Fried's past endeavors in the business and political worlds may impact these events. Ultimately, it will be up to the legal system and the stakeholders involved to determine the path forward for Bankman-Fried.
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