Bloomberg: SBF is turning industry collapse into buying opportunities, what is the motivation behind it?

Original Title: 《Sam Bankman-Fried Expands FTX, Alameda Empire By Bailing Out Failing Crypto Firm》

Authors: Hannah Miller & Olga Kharif, Bloomberg

Translation: Hu Tao, Chain Catcher

In a 14-day span in June, crypto industry billionaire Sam Bankman-Fried engaged in an unprecedented trading frenzy in the history of the industry. The deals came in rapid succession, dazzling observers: he acquired two companies, supported the crypto platform BlockFi, and attempted to rescue another, Voyager Digital, with a large loan.

In total, Bankman-Fried committed about $1 billion, an astonishing risk even for someone with a net worth of $10 billion. Amid the cryptocurrency crash, $2 trillion in market value evaporated in just eight months. For his many ardent fans, this further proved that SBF is, as they call him, a benevolent, well-funded investor and philanthropist who stepped in to help the industry when it needed it most.

Perhaps another explanation is that Bankman-Fried's maneuvers and trades reveal the full extent of his plans to dominate the crypto industry. Like other financial titans before him—John Pierpont Morgan a century ago and modern-day Warren Buffett—he is using the misfortunes of competitors to expand his empire at bargain prices. If there are elements of saving the industry in the rescue plans he is orchestrating, it is also because this crisis, if large enough, could ultimately threaten his core business.

"He’s not doing this out of goodwill," says Chris McCann, who has known Bankman-Fried since 2018 and is a general partner at Race Capital, one of the earliest venture capital firms to invest in FTX. "His ambition is limitless at this point."

Of course, all of this could backfire. In Wall Street parlance, the whole situation feels like he is trying to catch a falling knife, as evidenced by Voyager Digital's bankruptcy filing just days after its rescue loan was announced. If successful, Bankman-Fried would gain direct and indirect control over the industry. For many loyal cryptocurrency enthusiasts, this is a troubling thought, as they believe decentralization sets their market apart from the traditional financial system run by a few large banks and trading firms.

"The whole industry being tied to FTX is dangerous," says Elliot Chun, a partner at Architect Partners, a crypto mergers and strategic financing consulting firm, "which is often detrimental to the free market, especially the free market that crypto enthusiasts embrace."

Sam Bankman-Fried's Crypto Empire

Bankman-Fried stated that the industry would face greater risks if no one took action. "What we least want to see is the crisis spreading. What we least want to see is customer assets not being protected. As for whether we have good investments to get a return, that is somewhat secondary."

Nonetheless, his public comments and behind-the-scenes tactics suggest that more and larger deals are almost certain to emerge. Bloomberg reported that FTX is exploring the possibility of acquiring Robinhood Markets Inc., an app-based stock and cryptocurrency brokerage that was once valued at nearly $60 billion before its recent value plunge. Bankman-Fried later said there were no active negotiations. Last year, he even floated the idea of one day acquiring Goldman Sachs. It is unclear whether he was joking.

McCann said he wants "to win everything, and even more."

Bankman-Fried entered the crypto space relatively late. As a physics graduate from MIT, he didn't fully dive in until 2017, when he left the quantitative trading firm Jane Street and launched his own venture, Alameda Research. By being able to focus full-time on cryptocurrency, he quickly built a reputation for himself as Alameda soared on an online leaderboard that ranked traders' performances.

Two years later, when he decided to start FTX in Hong Kong, his rapidly growing influence came into play. His fans flocked to the platform, attracted by low fees and appealing products, and it quickly became one of the largest platforms for cryptocurrency derivatives trading. He is estimated to own over 50% of FTX, 70% of FTX US (which started in 2020), and nearly all of Alameda's shares. Now headquartered in the Bahamas, FTX raised $400 million in January at a valuation of $32 billion, while FTX US was valued at about $8 billion.

Crypto investment strategist Lyn Alden noted that Bankman-Fried skillfully managed his company's capital while favoring profitability over growth at all costs, a strategy that has now returned to haunt many of his competitors. "He keeps his employee base very tight," she said, "and they raise funds when they don't need it." This allows him to make cheap acquisitions when others in the crypto world are struggling.

In June, he acquired the Canadian crypto trading platform Bitvo Inc. and the brokerage service company Embed Financial Technologies Inc. As the collapse of the TerraUSD stablecoin and the internal failures of Celsius and Three Arrows Capital intensified the cryptocurrency sell-off, Bankman-Fried took his two largest actions to date, providing a $485 million loan to the beleaguered crypto brokerage Voyager Digital and a $400 million revolving credit facility to rescue the digital asset lender BlockFi, which came with an option for direct acquisition of the company.

Voyager sought Chapter 11 protection just days after announcing its financial lifeline (before it could utilize the full loan). "We didn't have months or even weeks to conduct due diligence. We had two days," Bankman-Fried said, adding that the purpose was to protect customer assets, not to support Voyager's business.

In contrast, the BlockFi deal has been touted as a victory for Bankman-Fried, even by his competitors. Industry observers say he likely acquired the company, which was last valued at $3 billion, at a very low price. "This is a good outcome for BlockFi customers, FTX, and the entire industry," said Mauricio Di Bartolomeo, co-founder of Ledn, which proposed injecting new funds into the troubled company but had its bid rejected, leading BlockFi to support the deal with FTX US instead.

Dan Matuszewski, co-founder of CMS Holdings, which invested in BlockFi and FTX, stated that the rescue of BlockFi was also a strategic decision to help FTX US build its brand and gain more potential customers. The eventual acquisition will also help Bankman-Fried further expand into the crypto lending space. "This could mean that FTX will offer a wider range of retail products," he said.

Bankman-Fried mentioned that his team has researched about 10 transactions—including deals with Celsius and Terra, both of which he abandoned. He said he has supported several companies, but his involvement has not been made public. He stated that his team has been in contact with companies rumored to be in trouble, analyzing their balance sheets to identify the measures needed to save the businesses.

He is also considering raising new funds to finance more deals, although he noted that the number of distressed transactions his team is examining has significantly decreased in recent weeks. "I don't know of any other large companies that are about to go under," he said, "I can't guarantee there won't be. Hopefully, we've already weathered the worst of it."

Bankman-Fried's Acquisition Deals This Year

When it comes to how much power Bankman-Fried has accumulated, some in the crypto industry have found it troubling, especially considering Alameda Research, which, despite sounding like a Silicon Valley robotics lab, has evolved into an influential trading and venture capital firm. According to Architect Partners, Alameda and FTX are expected to become the largest providers of distressed financing in the industry in the second half of 2022.

Given the breadth and scope of his business interests, many industry insiders believe there could be conflicts of interest in the future. The bankruptcy filings of Voyager and Celsius highlight Bankman-Fried's extensive influence in the industry. Voyager's disclosures revealed a complex, interrelated web of investments, lending, and borrowing between the company and Alameda, while Celsius listed the trading firm as one of its creditors. "FTX and Alameda's advantage is that they can create or destroy projects," said Toby Lewis, CEO of analysis firm Novum Insights.

According to Chun of Architect Partners, Bankman-Fried's ever-expanding market influence has the potential to broadly reduce market competition. "You can imagine a scenario where, if FTX continues to hold these levels, who else will be around?" he said.

Nevertheless, for many, Bankman-Fried, with his wild Einstein-like hair and promise to eventually donate nearly all his wealth, represents a cultural figure that crypto enthusiasts can rally behind. He is active on Twitter and unafraid to pose existential questions about the industry and its future. "Decentralization still needs role models, still needs leaders, still needs pathfinders," said Matthew Roszak, co-founder of blockchain technology company Bloq Inc.

This does not mean Bankman-Fried cannot take advantage when his rivals are in despair. "He is not a kind, gentle savior," McCann of Race Capital said, "I wouldn't be fooled for a minute."