The recent weeks have seen the fall of crypto-king Sam Bankman-Fried (aka SBF). The epic rise and the spectacular fall of him and his FTX empire has us all asking one question: what happened?
We’ll initially explore this saga over several posts.
In this post, we look at 5 videos that cover the rise of SBF and his FTX crypto-exchange. We’ll start by looking at how he initially got rich through arbitrage trading, look at the FTX “business model”, his connections to the US government, and then close with the celebrity endorsements that helped propel him to stardom.
Video #1: The Benevolent Billionaire?
Probably my first encounter with SBF, was in his interview with Nas Daily. We learn how SBF rose to fame in the crypto space by taking advantage of price differences in bitcoin in the US and in Japan. More importantly, the video captures the hope and the hype around the “earn to give” concept that SBF promoted. Turns out it was all hype and no hope. Vox published their twitter DMs with SBF, where he explains “I feel bad for those who get f***** by it…this dumb game we woke westerners play where we say all the right shiboleths [sic] and so everyone likes us” (link).
Video #2: Did SBF really say that Crypto is a Ponzi Scheme – 7 months ago?
On Bloomberg’s Odd Lot’s podcast aired back in April 2022, SBF seems to admit to Wall Street’s Wiseman Matt Levine that “magic internet money” is a Ponzi scheme. If you don’t have time to listen to the whole podcast, check out Coffeezilla’s quick takes. The technique that SBF discusses appears to have been used in Celsius, which we discussed previously.
Video #3: There are magic boxes, but magic business models?
On a separate but related note, FTX offered high rates of interests to depositors. As shown in Wall Street Millennial’s video, the rates were much higher than the fed rate that was close to zero at the time. This is not so much about the magic money box that SBF referred to in the previous video, but rather pure magic. How else can we explain the sustainability of such a high interest rate on bitcoin/Ethereum deposits? As CPAs know, when expenses exceed revenues – a business failure is inevitable. (Click here to go to the timestamp where they discuss the issue of interest rate deposits)
Video #4: If you’re for regulations, you’re one of the good guys – right?
Stepping back, Cold Fusion’s video gives a good broad understanding of the key events that happened with the rise and sudden fall of FTX. (The previous video is also quite good as well). That being said, this video takes time to highlight SBF’s connection with the government and regulatory bodies.
Firstly, his mom is connected to the Democratic party. Secondly, he testified before congress, donated to both parties (not just the Democrats), and met with Gary Gensler from the SEC. If you look carefully at the screen shot where he speaks about the meeting with Gensler, you may recognize IEX’s Brad Katsuyama. (Reuters reported here on this meeting). He’s the protagonist of Michael Lewis’s Flash Boys. And that’s not the only connection to Lewis. Reports have emerged that Lewis had spent 6 months with SBF and is planning to publish a book about him. Lastly, there is an odd connection between FTX’s CEO, Caroline Ellison, and Gary Gensler. As Cold Fusion points out, Caroline’s father, Glenn Ellison, was Gensler’s boss at MIT.
Video #5: Is FTX a smart bet, with all these celeb endorsements?
Both Wall Street Millennial and Cold Fusion pointed out the role of influencers played in pumping the FTX/SBF brand name. But we don’t just need to take their word for it. We can see it for ourselves. Some of the promo videos are still live on FTX’s YouTube Channel. This video features Canada’s own Kevin O’Leary:
If you didn’t have a chance to go through the whole video, check out this part where he and the host emphasize the compliance-orientation of SBF and FTX. Now, that definitely didn’t age well. But perhaps what’s more surprising is O’Leary’s comments post-FTX meltdown. Apparently, he would back SBF in another crypto-venture (link).
Lastly, if you are interested in seeing the actual adverts aired on TV, check out this one featuring the actor Larry David.
In our next post, we’ll look at some more videos that take a closer look at the “Ten Days in November” that broke FTX and could have possibly ushered in the “Crypto Ice Age”.
Malik Datardina, CPA, CA who has more than 20 years of experience in information systems, risk and assurance, information security governance and audit data analytics. In his current role as a Governance, Risk Management, and Compliance (GRC) Strategist, where he manages internal compliance at Auvenir and takes a strategic lens towards the latest trends in innovation to build the audit platform of the future.