Caída de FTX ¿qué fue lo que pasó y qué pasará en el futuro?
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The story about what happened to the Sam Bankman-Fried and FTX empire is really to make a movie or even a Netflix series and I think it would win all the awards for audience records, since not long ago the situation was as follows:
- FTX was the world’s second largest broker of crypto-assets, with more than a million clients; It also had annual revenues of over a billion dollars. And, it came to have a market value of over 32 billion dollars.
- Sam Bankman-Fried, was a respected Billionaire that everyone wanted to interview and some even called him the Warren Buffett of crypto. His personal fortune until recently was 16 billion dollars.
- The best artists and athletes were advertising for FTX; some of them are: Tom Bradley, Shaquille O’Neal and tennis star Naomi Osaka. The home of the Miami Heat was renamed FTX Arena after the company paid about $135 million for the rights.
- Large investment funds, such as Sequoia Capital, supported this company and had invested some $210 million dollars in FTX.
FTX breaking all Guinness records
Instead, in the month of November 2022, everything changed again, breaking all Guinness records:
- More than a million investors do not know what will happen to their money
- Sam Bankman-Fried’s companies are bankrupt, his personal fortune is almost zero and many see that he should be in prison.
- There is a hole in FTX that exceeds 8 billion dollars and the commission that took control of the company points out:
- “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as happened here.”
And the vast majority begin to compare this company and its founder to the great con men of history like Bernie Madoff.
What happened to FTX and the Sam Bankman-Fried empire?
We are going to explain this case in the simplest way possible, making a small chronological summary so that they can know the most relevant aspects:
Sam Bankman-Fried or SBF was considered the good guy of the crypto world, even in some cases a savior of the market. Some people came to have the audacity to compare him with John Pierpont Morgan – J.P Morgan; saying that his involvement helping other crypto companies was similar to what J.P. Morgan, really nonsense.
SBF is a graduate of MIT, he always appeared in a casual outfit with a shorts and a flannel; and, when his company was active, he lived in the Bahamas.
Sam’s Beginnings
Sam’s beginnings are mainly with a company called Alameda Research, where he begins to see that different crypto assets were being bought and sold at different prices in different places; In this way, you could take advantage of those variations and make a lot of money. Without much risk because I bought something on one site to later sell it at a higher price on another site.
This confirms to him that there is a very good business in doing this activity, but for many people, and he founds FTX. It is there that investors could put their crypto assets and buy more or sell them; and, earning a differential for it, until then one could say that everything was going well.
Then the big ambition begins and issues its own crypto asset called FTT. Seen in another way, it is as if you could create your own currency and also use your own investment company to buy it from you, in this case Alameda Research; and, of course, take its price to the clouds in an artificial way.
The false promise of becoming a millionaire with FTX
And as usual in the crypto market, people were seeing the asset called FTT start to rise. Friends with the story of making quick money, overnight, and thinking that they were smarter, began to buy this asset. In addition, with the false promise of becoming millionaires because Sam Bankman-Fried was involved, they did not know that they would then remain as his name as a fried banker.
Feeling indestructible with this amount of money, SBF decides to invest in Robinhood, which is an app for buying and selling shares and cryptos. It acquires 7% and many saw it as a support mechanism for this company.
As in all banking crises and pyramid or Ponzi schemes; with the fall that the value of crypto assets had been suffering in 2022, where Bitcoin went from more than 60,000 to losing more than 60% of its value and as Warren Buffett tells us:
“Only when the tide goes out do you find out who has been swimming naked.”
FTX in November 2022
In this case, the same thing happens, in November 2022 Coindesk published a report showing that Alameda Research is one of the great owners of the FTT Token and nothing less than the biggest competitor of FTX, the founder of Binance, the largest sales center and purchase of crypto assets, he owns a significant amount of FTT and goes out to sell them, upon seeing this report, which he surely already knew, and he makes sure that everyone finds out by posting a Tweet about it.
Seeing this our friends who wanted quick wealth panic, and start selling these assets quickly; which causes the FTT price to go to the ground. This makes many people see that FTX could also be affected because they start to withdraw their money.
And this is where the worst came from, if FTX and Sam hadn’t done anything wrong, the situation would only have affected their investment company Alameda Research. This is precisely an investment fund, and one might think that this is part of the risk of investing in risky assets that you issue yourself.
SBF’s ambition
With which the damage would have stopped there, but it turns out that Sam’s ambition caused him to presumably fraudulently use the crypto assets that investors entrusted to him at FTX to keep them and that is why when people start to Withdrawing his money initially had a hole of about 8 billion dollars, which was money that he used for other purposes without permission from the investors.
There Sam begins to look for someone to lend him money like crazy to cover that silver that he took out and that it was forbidden to use, having to resort to his arch enemy the founder Binance, who initially indicated that he could lend it to him, but when he saw how he was doing the company inside later said that they were not going to get into that problem, and that is where everything begins to collapse, for having been built on pure air.
Some investigations are already beginning to show how this company did not keep an adequate record of how much each investor had, where the money was, money was passed from one side to the other with preferential deals between Alameda Research and FTX, and even Sam’s trusted employees They bought houses in the Bahamas for themselves without having to pay back the money, as well as all the spending that was done on advertising and trying to save other companies from the crypto world.
Learnings for your personal finances from the Binance case:
1.- Do not continue believing in riches overnight; You have already seen that there are scammers who can convince even the most knowledgeable investors in the market.
2.- Never invest in speculative investments more than that money that you can really lose.
3.- If scams have occurred in banks that are regulated and supervised; imagine in those who rather do not have to report to any supervisory entity. Remembering that the fact that the company is in the U.S.A. it does not imply that it is supervised as was the case with FTX USA.
4.- Just because it’s fashionable and because everyone is doing it doesn’t mean it’s a good investment. Many said that you do not understand this new technology
5.- Invest your family’s money or your personal assets, in sites that are regulated, with protection such as that of the FDIC or SIPC, and in things that you can understand and that generate a return or fruit. For example, stocks pay dividends and bonds pay interest, but crypto assets are codes in computers that don’t make money on their own.
Finally, as they say out there, the devil knows more for being old than for being a devil and let’s remember what Warren Buffett said
“If you owned all the bitcoin in the world and offered it to me for $25, I wouldn’t take it.”
Founder & CEO Advise Financial
Alonso is a “CERTIFIED FINANCIAL PLANNER™” who is dedicated to increasing the Financial Well-being of nurses, physicians and successful immigrants in Florida and Texas. With more than 20 years of experience in the world of finance, always working for the best interest of his clients, under fiduciary criteria.
