2022 looked like it was going to be the best year of crypto entrepreneur Sam Bankman-Fried’s short life.
This son of Stanford professors turned 30 and the company he founded in 2019, FTX, a digital currency buying and selling platform, was among the biggest market leaders.
According to Forbes magazine, this year the fortune of this graduate of the Massachusetts Institute of Technology (MIT) reached US $ 24,000 million, almost tripling his fortune in 2021.
But almost from one second to another, everything fell apart: his firm went bankrupt and Bankman-Fried resigned.
The FTX crisis has been compared by some pundits to the collapse of investment bank Lehman Brothers in the Great Crash of 2008, with many wondering if the firm’s tailspin could have a domino effect on the entire cryptocurrency industry.
For now, bitcoin, the largest digital currency, reached its lowest price since 2020 and like it, other cryptocurrencies were dragged into a well whose bottom remains uncertain.
As if it were a television drama, frantic negotiations have erupted in recent days in which FTX’s biggest rival, Binance, publicly said that it would rescue its competitor but, hours later, announced that it would not buy the firm.
In the midst of the chaos, this Thursday Bankman-Fried himself came out to apologize on Twitter and acknowledged that he did things wrong.
“I was wrong. I should have done better,” he wrote.
Why did FTX go down? Following rumors that the company did not have enough liquidity, customers began making frantic withdrawals of hundreds of millions of dollars in fear of losing their funds.
According to Bloomberg Wealth, the firm is now worth less than $1 billion, a 94% drop in value in a single day.
The importance of FTX to the cryptocurrency industry is so great that investment bank JPMorgan Chase has warned that crypto markets could face a “cascade” of business failures.
The BBC has tried to contact FTX, but has received no response. A notice on its website read: “At this time, FTX is unable to process withdrawals. We strongly advise against making deposits.”
Experts are concerned about what could happen, especially since the world of cryptocurrencies is going through a “crypto winter”, that is, a sustained stage of low prices.
“This is a black swan event that adds more fears in the crypto world. This cold winter for crypto now brings more fear,” Dan Ives, senior equity analyst at Wedbush Securities, told the BBC.
US authorities are investigating the handling of the funds within FTX and other firms run by Bankman-Fried.
Bankman-Fried – whom some have dubbed the “Warren Buffet” of his generation – became “a beacon of hope for investors large and small”, BBC technology analyst Joe Tidy said after prices of cryptocurrencies suffered precipitous falls at the beginning of the year.
“In the past six months, the 30-something had awarded generous bailout packages to struggling firms, secured lucrative buyouts and given high-profile interviews.”
In several of them, including one with the American news portal Vox in March 2021, Bankman-Fried explained his vision: get rich and then distribute the profits.
“If what you are trying to donate,” the crypto entrepreneur told Vox, “you should try to donate as much as possible. [de dinero] you can, and donate as much as you can.”
This approach made Bankman-Fried one of the largest single donors to US President Joe Biden’s campaign.
And it led him to cultivate a public image close to the idea of Robin Hood.
For Joe Tidy, many of these interviews are costing him dearly in these difficult times, particularly when it comes to the health of the virtual currency system.
“Now it appears that your company joins the growing list of cryptocurrency firms that have failed due to a recurring problem: lack of cash reserves”
“FTX is not the first company to succumb to the so-called ‘crypto winter’ we find ourselves in,” he concludes. “But it is by far the largest.”
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