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The rise and fall of FTX's Sam Bankman-Fried, who became a crypto billionaire in just 4 years — and lost most of his wealth in a single dayhttps://www.businessinsider.in/cryptocurrency/news/the-rise-and-fall-of-ftxaposs-sam-bankman-fried-who-became-a-crypto-billionaire-in-just-4-years-ampmdash-and-lost-most-of-his-wealth-in-a-single-day/slidelist/95413543.cms2022-11-10T07:23:46+05:30

The rise and fall of FTX's Sam Bankman-Fried, who became a crypto billionaire in just 4 years — and lost most of his wealth in a single day

Lakshmi VaranasiNov 10, 2022, 07:23 IST

Bankman-Fried grew up in Silicon Valley as the son of two Stanford Law professors.

He spent his childhood playing games like chess and bridge. His brother, Gabe, told Insider, "playing games growing up, his inclination is if a board game is fun, you should play two simultaneous games at once with a timer."

Bankman-Fried studied physics at Massachusetts Institute of Technology where he juggled several extracurriculars alongside his academics. "I worked like an hour and a half a day in total and had trouble getting places on time," Bankman-Fried told Insider. "I was a really negligent student."

During college, Bankman-Fried began honing his moral compass. He became especially interested in effective altruism, a philosophical movement that uses calculations to understand how people can use their time, money, and resources to best help others.

After college, Bankman-Fried went to work for the global trading firm, Jane Street. That's where he learned the art of arbitrage— a form of trading in which traders buy an asset for a low price in one market and sell it for higher in another market.

During his three years at Jane Street, Bankman-Fried would give away half of his salary to animal-welfare groups and effective altruism charities, according to Bloomberg. He left to work for MacAskill's Centre for Effective Altruism, set up by William MacAskill, one of the leaders of the effective altruism movement.

By 2017, crypto was booming, and people were trading on private exchanges. Bankman-Fried noticed that some coins were selling for higher prices on some exchanges than others. He realized he could use his arbitrage skills to exploit the gaps in prices.

By October of 2017, Bankman-Fried had set up his own crypto trading firm, Alameda Research, in Berkeley, California. His Alameda colleagues told Insider that he was adept at finding ways to move faster than other traders.

At its peak, Alameda was moving almost $15 million a day between markets, according to Bloomberg. Bankman-Fried soon earned the nickname "the Moby Dick of crypto whales" for the waves he was making in the crypto industry.

In 2018, he abruptly moved Alameda's team to Hong Kong, after realizing how lax the rules were compared to the United States. "I think we're losing $50,000 a day by not working out of Hong Kong instead of Berkeley," one of his colleagues who spoke to Insider recalled him saying.

As Bankman-Fried continued to rack up money from trading, his ambitions grew, too. He began entertaining thoughts of building an alternative to what he called the "shitshow exchanges" he was trading in between the years of 2017 and 2018.

By the start of 2019, Bankman-Fried and his team were fervently working towards building their own crypto exchange. After four months coding, they launched FTX in May.

FTX was a win. The platform boasted cost-effective features like low-trading fees and offered several types of coins for traders to bet on. FTX even allowed traders to swap cash as collateral for coins.

In 2020, Bankman-Fried also opened a small US branch of FTX. He had designs of eventually taking a major slice of the U.S. crypto market and began lobbying Congress for new crypto rules a few times a year. He's also donated millions to pro-crypto super PAC, GMI PAC, according to Politico.

In September 2021, Bankman-Fried decided to move FTX's operations to the Bahamas. It was just a flight away from Miami, but the platform could still operate outside of the SEC's purview.

FTX only takes a minor cut of every trade, but by 2020, an average of $1 billion was being traded daily on the platform, according to Bloomberg. In 2021 alone, Bankman-Fried raked in a profit of $350 million from FTX, and another $1 billion from Alameda, according to Bloomberg.

Major investors like SoftBank Vision Fund, Tiger Global, Sequoia Capital, and BlackRock placed bets on FTX in funding rounds. By early 2022, FTX and its U.S. operations were valued by investors at a combined $40 billion, according to Forbes.

At his peak, Bankman-Fried's own net worth was $26 billion, according to Bloomberg.

He's allocated that wealth towards sponsorships, funding political leaders, and furthering his moral agenda.

He suddenly emerged as a major political donor in 2020 and spent over $10 million backing Joe Biden's presidential campaign, according to Politico. But Bankman-Fried actually made his political first donation back in 2010 to Democratic Senator Michael Bennet of Colorado, Politico reported.

He spent over $40 million on campaigns in 2022, according to Federal Election Committee filings reviewed by Politico.

He's made donations on both sides of the political aisle though the majority of his funding has skewed towards Democratic leaders. The Los Angeles Times reported that Bankman-Fried has given $1 million to the Senate Majority PAC and $6 million to the House Majority PAC— two super PACs that are dedicated to keeping Congress in the hands of Democrats. He also funded Protect Our Future, a Super PAC that focuses exclusively on Democratic House primaries, according to Politico.

He's made COVID-19 prevention a top issue as the principle funder of Guarding Against Pandemics, a nonprofit run by his brother Gabe, according to Politico.

Bankman-Fried has said his donations are about furthering his larger belief in effective altruism. He told Bloomberg that he would eventually only keep 1% of his income or a minimum of $100,000 a year.

His simple lifestyle, too, follows the ideas of effective altruism. He drives a Toyota Corolla, lives with roommates, and is vegan.

At the same time, he's funneled money into flashy corporate sponsorships. His most notable is acquiring naming rights for the Miami Heat's arena which will cost him about $135 million over 19 years, according to Bloomberg.

He also spent about $30 million airing an ad in the 2022 Super Bowl with the comedian Larry David, according to Bloomberg.

Through FTX, Bankman-Fried has also forged deals with major basketball teams like the Washington Wizards and Golden State Warriors. FTX has also struck deals with individual athletes like basketball player Steph Curry and quarterback Tom Brady.

Bankman-Fried seemed unstoppable— until he wasn't. In early November, the crypto publication CoinDesk reported a leaked balance sheet that showed that Alameda Research was on unstable grounds.

The report revealed that most of Alameda's assets were tied up in FTX's in-house token, FTT. With the broader crypto market already reeling, traders began worrying about a sudden drop in the value of FTT.

Changpeng Zhao, who runs Binance, FTX's rival exchange, announced shortly after that Binance would be selling its holdings of FTT. With that traders across the board began rushing to withdraw their own holdings off of FTX's platform. Bankman-Fried had no choice but to ask Binance to bail FTX out.

By Wednesday, Binance had walked away from the deal. Bankman-Fried's own assets have dropped 94% and his net worth plummeted to around $1 billion, according to Bloomberg. It's likely that FTX's own customers are going to pay for the fallout.

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The rise and fall of FTX's Sam Bankman-Fried, who became a crypto billionaire in just 4 years &mdash; and lost most of his wealth in a single day