How one of the richest men in cryptocurrency came a cropper, losing more than $40 billion
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You know you've really made it when the whole world knows you by your initials.
Guitarists genuflect to SRV, the late Stevie Ray Vaughan. Surfers globally bow down to MR and AI, Mark Richards and the late Andy Irons. Mention AB in the world of cricket and everyone knows exactly who you're talking about: Allan Border.
But when it comes to the world of money, there are no real standouts. Bill Gates is just Bill Gates. Andrew Forrest is Twiggy. Sure, there was DSK — Dominique Strauss Kahn — but everybody would prefer to forget him.
You have to dig down into the mysterious and ever-shrinking world of cryptocurrency to find anyone who identifies as an initialled icon and, even then, potentially self-appointed.
This year has been incredibly tough for business. And, it's been especially unkind for those out there on the perimeter where there are no longer any stars.
It also has signalled the end of perhaps one of the most ludicrous financial booms in history, the great crypto kleptomania. And the demise was hastened last week by the incredible crash of one of that universe's masters, SBF — or Sam Bankman-Fried to his mother.
From a $US30 billion ($45 billion) fortune a week ago, his wealth had been whittled down to his last billion — at least if the New York Post is correct — following the implosion of his cryptocurrency exchange FTX, the world's second-biggest.
It's possible he's lost the lot, although given he is a resident of the Bahamas — where legend has it he resides in a penthouse with about 10 roommates — there's a strong chance he has managed to put some aside for a tropical downpour.
Early this year, he was hailed as a saviour, swooping in to snap up assets from beleaguered crypto operations like Three Arrows — a hedge fund caught up in the great bitcoin unravelling — and handing out loans to struggling firms as the wheels began to fall off the industry.
Bitcoin Price in US Dollars
Source: Coindesk
The end was brutally swift. A week ago, rumours of a liquidity crunch at FTX began circulating in the insular world of cryptocurrency after a leaked internal document indicated the whole empire was a house of cards.
Like many in the crypto world, FTX has its own currency called FTT. The leaked document indicated that the firm's main investment vehicle Alameda Research had been stuffed full of FTT tokens — with dubious value – to artificially inflate its assets.
That prompted sometime rival and occasional ally — another exchange called Binance — to dump all its FTT tokens on the market, effectively sparking the equivalent of a bank run on FTX.
The tale then gets darker. As the crisis enveloping FTX intensified, Binance chief Changpeng Zhao — otherwise known as CZ — announced his firm would bail out the stricken FTX and buy it outright.
Bitcoin and other cryptocurrency prices went into freefall, spooked by the sudden turn of events. Within a day, however, the deal was off and the rout began in earnest.
According to Zhao, there were too many uncertainties, given allegations of misconduct and just a little too much oversight from US regulators trying to get to the bottom of the collapse.
By Friday, SBF had dumped the initials and it was Sam Bankman-Fried who was filing for bankruptcy and begging forgiveness via Twitter. His firm reportedly has an $US8 billion shortfall spread over a complex web of more than 130 entities and the million-odd customers who use the platform look to have lost everything.
Until a few weeks ago, the mop-topped 30-year-old was hailed a genius. It now appears he was running a giant Ponzi scheme.
About the only things growing in the crypto world these days are the tombstones.
In May, it was Luna, a so-called stablecoin supported by a sister coin Terra, that went under in spectacular style. The following month it was Celsius, an experimental crypto bank that was forced to file for bankruptcy with a $US1.2 billion ($1.8 billion) shortfall.
Among the list of major creditors in the Celsius collapse was one Sam Bankman-Fried. The collapse of his empire should not have come as a surprise for, despite cultivating an air of mathematical prowess and sophisticated trading techniques, his FTX firm simply followed the crypto playbook.
First, create your own currency, or tokens as they are known. Assign a value to these completely worthless tokens and then run an "exchange" where clients can trade cryptocurrencies. That way, you can manipulate the price of you own currency.
Finally, hoover up as many clients as possible by offering spectacular returns, often around 20 per cent. It's known in the game as "yield farming". In many cases, however, it appears to have simply been a lure to suck in capital to help pay returns to those who already had "invested".
The recent run of collapses largely has been sparked by the crashing prices of cryptocurrencies, and particularly bitcoin. That's eroded confidence and slowed the once steady stream of new entrants wanting to make it rich quick has started to evaporate.
That, in turn, has caused a liquidity crunch across the crypto sphere. There's not enough cash coming in to meet the payments required to keep the bubble afloat.
The one big area of conflict between Bankman-Fried and Binance head Zhao was over-regulation.
While Bankman-Fried was spearheading a push for regulation until just a fortnight ago, many believed it was a cynical attempt to introduce bare minimum standards that would legitimise cryptocurrencies and further his own interests.
Anthony and a woman he'd met online messaged every day for months. Their chat history shows how scammers won his trust — and then drained his savings.
Binance, the biggest crypto exchange, was dead against any form of regulation. That isn't surprising given it has been banned from operating in the UK and Italy along with several US states, is under investigation in India and attracted warnings from authorities in Japan and Hong Kong.
It does, however, operate legally in Australia.
The idea of regulation is an anathema to many in the world of cryptocurrency. Bitcoin was born from a whimsical idea of a new form of monetary autonomy, free from the manipulation of government and central banks.
Instead, it has spawned thousands of pretenders and devolved primarily to serve two key functions; to act as a cover for money laundering and terrorism financing and provide fertile ground for scammers trying to fleece investors. All while causing huge environmental damage through the electricity required to "mine" coins.
As a means of exchange in ordinary commerce, they're all but useless. Most are hideously expensive to use and given the wild fluctuations in value, offer no security on pricing. Long touted as a store of wealth, they have instead become a monument to wealth destruction. In the past year, they have burned around $US2.5 trillion ($3.75 trillion) of investor wealth.
The ultimate irony is that crypto heroes like Bankman-Fried, for all their professed love of the new digital future, measured their success in good old-fashioned fiat currencies; mostly US dollars. Why would that be?
Digital currencies, and the technology behind them, may have a future. But it will be a future controlled by government and central banks as they increasingly roll out their own.
Money is a complex phenomenon. Its creation and the speed at which it circulates remains subject to competing theories.
At its core, however, is the element of trust. A dollar only has value when someone believes that value exists, usually based upon a guarantee from a sovereign government.
When that trust is abused, retribution is swift. Just ask SBF.
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