• Saturday, June 22, 2024
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How Bankman-Fried embarked on $1 billion spending spree to save crypto firms

How Bankman-Fried embarked on $1 billion spending spree to save crypto firms

Bankman-Fried, chief executive of cryptocurrency exchange FTX Trading Ltd has this year spent over $1 billion to save crypto companies heavily impacted by the months of market downturns.

This year, he bailed out a troubled digital-currency lender and tried to stabilize another. He acquired crypto exchanges in Canada and Japan. He appeared in magazine ads opposite supermodel Gisele Bündchen in a bid to keep mainstream investors enthusiastic about crypto despite the downturn.

Bitcoin has fallen nearly 70 percent from its November peak of $67,553.95 and the crash has erased $2 trillion of value from the crypto market, hurting millions of investors. Now, with bitcoin hovering around $21,000 roughly in line with its level in late 2020, before last year’s big bull market Mr. Bankman-Fried says the worst is over.

The 30-year-old billionaire says he wants to turn FTX into a sort of financial supermarket, offering everything from lending to stock trading to payments.

“The idea generating this is, ‘What do you actually want to do with your money, as the typical consumer? What are the things that are actually valuable for your day-to-day life?’ ” he said.

BlockFi and other crypto lenders did brisk business until May when the swift collapse of two cryptocurrencies called TerraUSD and Luna sent shock waves through the market and blew up hedge fund Three Arrows Capital Ltd., one of the biggest borrowers in crypto.

On June 12, a popular crypto lender called Celsius Network LLC suspended withdrawals. Other lenders, including BlockFi and Voyager, were threatened with the crypto equivalent of a run on the bank.

The crash set off rounds of calls into FTX’s headquarters in the Bahamas. Around 15 crypto firms sought money from FTX during a two-week stretch in June, including “miners” who run computer algorithms to generate bitcoin, as well as Celsius itself, Ramnik Arora, FTX executive recalled in an interview.

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During the recent downturn, he attempted to bail out two crypto lenders, BlockFi and Voyager, by loaning them money from FTX and Alameda, respectively.

on July 1, FTX agreed to loan BlockFi $400 million with an option to buy the firm for up to $240 million. That price is a steal compared with the $4.75 billion valuation that BlockFi reached in July 2021, according to PitchBook data.

“It’s certainly not the outcome that we were expecting last summer,” said Zac Prince, BlockFi CEO, but he called the FTX deal a win for the company and its clients. Unlike other offers BlockFi received, which could have forced BlockFi’s retail customers to lose part of their deposits, the FTX transaction was designed to keep depositors whole.

BlockFi says it has more than 650,000 funded accounts and If FTX ends up buying BlockFi, it will expand into the lending market, adding the crypto version of a big bank to Bankman-Fried’s portfolio.

FTX also acquired two crypto exchanges ‘Liquid’ and ‘Bitvo’ expanding into Japan and Canada, respectively. FTX has invested in non-crypto companies too, such as U.S. stock exchange operator IEX, as it expands into other markets.

Bankman-Fried has also invested personally in Robinhood Markets and a media startup, Semafor. But not all of Bankman-Fried’s moves have paid off.

FTX expanded earlier this year by acquiring Japanese crypto exchange Liquid, which was hit by a $97 million hack in August 2021. A few days later, FTX agreed to loan Liquid $120 million, keeping it afloat and setting the stage for the takeover.

It wasn’t an entirely smooth acquisition. FTX ended up losing thousands of Japanese customers who were already using FTX and refused to move over to the local unit regulated by Japan’s Financial Services Agency, a person familiar with the matter said.

Mr. Melamed, now Chief Operating Officer of FTX Japan, said, “We are confident we can return to previous levels of activity by Japanese users at FTX before the end of this year and surpass this by 2023.”

In June, FTX agreed to buy Canadian crypto exchange Bitvo Inc. FTX has also amassed licenses to provide financial services in Australia, Dubai, and the European Union as part of an international push.

FTX’s ambitions extend to traditional markets. After buying a registered U.S. brokerage firm last year, it recently allowed American customers to trade stocks on its app alongside bitcoin. In May, Bankman-Fried spent $648 million of his personal fortune to buy a 7.6 percent stake in Robinhood Markets Inc., maker of the popular trading app.

He revealed his purchase after Robinhood stock plunged nearly 80percent from its initial public offering; the shares have edged slightly higher since then.

The investment in Japan has proved rocky for FTX. And the trading firm he owns alongside FTX, Alameda Research, took losses when it tried to prop up troubled crypto lender Voyager Digital Ltd. Alameda lent Voyager $75 million and increased its stake in the company to 9.5 percent only for Voyager to file for bankruptcy less than two weeks later.

Bankman-Fried says his ultimate goal is to bring crypto to the masses. He wants to make FTX a household name and use the technology behind bitcoin to reinvent traditional finance, including the stock market and ordinary consumer payments.

“We want to do what we can to stem contagion, and sometimes that’s going to mean that we try to help out in cases where it’s not enough,” Mr. Bankman-Fried said. “If that never happened, I’d feel that we were being way too conservative.”

Like other crypto exchanges, FTX’s core business is to facilitate the buying and selling of digital currencies, and it takes a small cut of transactions. The firm has grown into a juggernaut since it was founded three years ago. With only about 300 employees, FTX is the world’s third-biggest crypto exchange by volume, doing $9.4 billion worth of trades on an average day, according to data provider CoinGecko.

The firm made a net income of $388 million on $1.02 billion of revenue last year, according to a person familiar with the matter. It has stayed profitable in 2022 even as crypto prices slumped, Bankman-Fried said. FTX was valued at $32 billion during its last funding round in January.

“Anything could happen, obviously, but as far as I know, we’ve seen most of the contagion already flushed out of the system,” Bankman-Fried said.

Bloomberg recently estimated his net worth at $11.9 billion, down from nearly $26 billion last year before the crypto crash. He is an adherent of effective altruism, a philosophical movement that says individuals should maximize their positive impact on society by making substantial money and giving it away. His favored causes include pandemic prevention and preventing artificial intelligence from harming humanity.