Forbes: SBF is not a true believer in crypto, his legend may be over

Original Author: Steven Ehrlich, Forbes

Original Title: 《Is This The End For Sam Bankman-Fried?》

Translation: Qianwen, ChainCatcher

Earlier this year, FTX CEO Sam Bankman-Fried extended a helping hand to a series of struggling cryptocurrency companies. The 30-year-old billionaire was hailed as the next J.P. Morgan. He portrayed himself as a shield for crypto, even at the cost of his own financial well-being. In an interview with Forbes, he stated, "We are willing to make this somewhat bad deal if it stabilizes the situation and protects customers." He continued, "More pain is coming. Some tier-three exchanges have secretly gone bankrupt."

Ironically, SBF has now become the one in need of help. He announced on Tuesday that FTX had raised nearly $2 billion in investments since 2019, the most recent being a sale to Binance in January at a valuation of $32 billion, with Binance being SBF's first investor.

This deal would nearly wipe out most of SBF's net worth. Forbes estimates that his net worth peaked at $24 billion, primarily benefiting from the value of FTX. FTX appeared to be one of the most robust companies in the industry, and this sudden turn of events is shocking. The public needs time to digest this, and then speculation will arise about what this former genius will do next.

The initial purpose of SBF's move may have been to ensure the completion of the deal, but this is far from a done deal—Binance CEO CZ explicitly stated in his own trading announcement that there are no binding agreements, and Binance can withdraw at any time.

FTX is trapped in a complex maze, facing numerous obstacles. It has franchises around the world. Recently, it acquired Bithumb, Liquid, and BitVo, located in South Korea, Japan, and Canada, respectively, but the acquisition amounts were not disclosed. FTX also pledged to provide over $750 million in rescue deals for struggling lenders Voyager and BlockFi. Both parties will need to agree on financial terms, but much of FTX's value is tied to its plummeting exchange token FTT, which may be difficult to achieve.

We have reason to doubt whether Bankman-Fried will remain in the cryptocurrency space long-term. In a Forbes profile from October 2021, he explicitly stated that he was never a true believer but merely viewed cryptocurrency as an easy way to make a fortune. Specifically, he endorsed a charitable stance known as effective altruism, a Silicon Valley-style philanthropy advocated by Princeton philosopher Peter Singer, favored by people like Facebook co-founder Dustin Moskovitz.

Many donors determine their giving direction based on personal values, but effective altruists decide when and where to donate based on data. They will make decisions based on more mainstream goals, such as saving the most lives or ensuring that every dollar donated generates maximum revenue. Effective altruism also requires its followers to choose specific roles—SBF chose the camp of "earning to give," committing to make as much money as possible and then handing it over to others to decide where the funds should go.

This mindset drove him into the cryptocurrency space in 2017. He realized he could buy Bitcoin in the U.S. and sell it in Japan for as much as a 30% profit. He said, "I got into crypto without having any idea what it was. It just seemed like there were a lot of good trades to be made." At his peak, he was transferring $25 million worth of Bitcoin daily.

When asked if he would leave the industry if he found a better way to make money, such as trading orange juice futures, he replied without hesitation, "Yes, I would."

This perspective places him at the opposite extreme compared to most cryptocurrency tycoons. He wouldn't want to write the original codebase for Bitcoin alongside perhaps pseudonymous Satoshi Nakamoto like Zcash founder Zooko Wilcox. Nor would he follow the soon-to-depart Kraken CEO Jesse Powell to Japan just to save the troubled Mt. Gox exchange, which once handled 80% of global Bitcoin transactions but fell victim to a hack that lost 850,000 Bitcoins. Unlike Brian Armstrong's Coinbase, which was founded to be an easy entry point for cryptocurrency, FTX initially targeted institutional investors as a professional exchange specializing in cryptocurrency derivatives like futures and options contracts, allowing traders to hedge against direct risks in the spot market while betting on asset prices. This setup proved highly effective, as no physical asset delivery was required when contracts expired, such as sending a barrel of crude oil to refineries worldwide. As a result, trading volume in cryptocurrency derivatives exploded, and exchanges like FTX profited immensely. SBF claimed in the summer that FTX had been profitable for the past ten quarters, with over $1 billion in expenses.

Derivatives play a crucial role in capital markets because they can eliminate price discrepancies for similar assets between exchanges. In simple terms, derivatives ensure that the price of Bitcoin in Asia is nearly identical to that in North America. However, cryptocurrency derivatives can be traded with leverage (traders borrow to increase their stake), which can lead to massive liquidations when the market changes. FTX once offered leverage of up to 100 times. When asked why, Bankman-Fried replied, "That's what our users wanted; many threatened to leave our platform if we didn't offer such services."

Due to multiple liquidations and public protests, FTX reduced the amount of leverage users could take on. "I don't want to claim that this is important for an efficient market because I don't think it is. Any trade done with that level of leverage cannot contribute to an efficient market; I think it's neither important nor beneficial for the cryptocurrency market."

That is to say, it benefits business, but market health would be destroyed.

Despite the current market collapse, FTX's token has caused a stir, losing about 74% of its value in the past two days—but SBF remains a billionaire. He will have to make a choice. He can try to stick it out in the cryptocurrency space, perhaps working for his friends, rivals, or enemies like CZ. He is also still the CEO of FTX.US, a relatively small branch of FTX. Regulators and law enforcement may look into his trades at FTX, which could complicate some of these issues. No one has claimed fraud has occurred, but even when everything is going well, authorities are cracking down on cryptocurrency. When a collapse of this scale happens, the government will intervene to investigate.

Just this afternoon, the top Republican on the House Financial Services Committee, Patrick McHenry of North Carolina, issued a statement expressing regret over the collapse and looking forward to "learning more about the developments from FTX and Binance in the coming days, as well as what steps they will take to protect customers during the transition."

SBF could also try to liquidate what remains and donate it to charitable organizations that share his ideals.

But this may not happen; even at the height of FTX, he chose not to donate despite multiple opportunities, opting instead to accumulate more wealth. Ironically, he spent $2.3 billion in July 2021 to buy Binance's stake in his exchange. If he hadn't done that, perhaps he would be richer today, and the war of words between Binance and FTX that led to Bankman-Fried's downfall would not have occurred.

SBF may stay in the cryptocurrency space or seek to rebuild his empire. But he is not a true believer in crypto, and these are all unknowns.

"The outside world is vast," he told Forbes in September 2021, "We should not think of cryptocurrency as the forever most fertile ground for work."