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These Skeptics Predicted Sam Bankman-Fried’s Collapse

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Bankman-Fried was “dirty and rotten to the core,” according to short seller Marc Cohodes a month before the FTX implosion.
Photo: Alex Wong/Getty Images

There are stereotypes (often accurate) of successful Silicon Valley investors. Owning both Patagonia and Series A wealth, this venture capitalist is freed from the cumbersome concerns of Wall Street (such as balance sheets) and looks at the world instead. Business is life, life is people, and the best businesses are created by the few visionary founders who can grasp and embody it, like Steve Jobs, Mark Zuckerberg, and Jeff Bezos. Through the sunny Californian lens of being able to. But of course, these founders’ ideas could only be realized with billions of dollars of other people’s money.For VCs, finding these rare and transformative individuals is all they do. is the heart of the matter, and its quest has almost spiritual significance. It’s changing the world, and it’s getting very rich in the process. (A 9- or 10-figure payoff is a cosmic story that you backed the right founder.) Until this month, I was the founder of the hugely successful FTX crypto exchange and an associated hedge fund called Alameda Research. One Sam Bankman-Fried said technology’s road to the Olympus summit: he said, “Crypto JP MorganNext Warren Buffettthe man with the clout to keep the rulemakers at bay reinvent money itself, and in turn liberating the world’s eight billion people to enjoy new economic freedoms. (All for a small service charge.) Billionaire? This guy was going to make a trilly.

It was a Silicon Valley story, but it had an astonishing buy-in in finance, media, politics, and even among average people around the world. Not many people were skeptical of Sam Bankman Freed.

But there were some. A small, loosely-connected group of investors and researchers saw a broader economic catastrophe in the cryptocurrency market in the first half of 2022, albeit a clear one in retrospect. , asked a difficult question. was it broken? What Bankman-Fried did was an old-fashioned scam. Namely, he stole his customers’ deposits on his FTX, the cryptocurrency exchange he founded, and spent or invested it for his own purposes. But that hard truth remained more or less hidden until this month. Because in the crypto world, downs often feel like ups, and people often bring a religious level of belief to their investments (or non-investments). It is very difficult to know what is true. Sure, there are plenty of skeptics who dismissed the whole cryptocurrency as a scam, but what made Bankman-Fried remarkable was his ability to beat those skeptics. Of people rich in process. Being skeptical of the wonders of the hairy boy was more than just having a vague view of cryptocurrencies, it was against a better world.

“When I hear someone say they are 30 and have between $10 billion and $11 billion in wealth, they pay attention. In my opinion, that person is a special person, right?” Mark Cohores, a short seller who has loaded , said: “So when I started paying attention to this guy, he said a lot of words and nothing made sense.” Case in point: Bankman-Fried’s origin story. Bankman-Fried said he bought bitcoin in the United States where bitcoin was cheap and readily available, and sold bitcoin in Japan and South Korea, where prices were higher and presented more barriers to foreigners. I figured out how. (Apparently, he had friends in Japan who could open an account.) But there were too many other questions that Cohodes, an investor for decades, couldn’t solve. “Where did you get the hundreds of millions of dollars from to do this deal, which is a complicated deal?” asked Cohorse. The fact that Bankman-Fried had no mentors and no serious time at a major Wall Street institution reinforced his suspicions. There was nothing. oh that makes sense

About a month before FTX exploded, a video from Cohodes declaring that Bankman-Fried was likely to be “dirty and rotten to the core” served as evidence that there were financial observers who saw the signs. , is making the rounds on Twitter.

Corruption is now evident. On November 16th, Vox published the following: definitive interview For Bankman-Fried, he reveals a version of himself that most people have never seen before. He mocked one of his own former co-founders for disdainful of all regulations and having ethical concerns, calling his own philanthropic pledges “This ridiculous game is what we do in the West.” Everybody likes us because it wakes people up and we play where we say all the right shibboleths.” (who restructured Enron years ago) imbued Bankman-Fried and his company with an aura of invincibility, calling them an “inexperienced minority group.” , unsophisticated and potentially compromising individuals” filing for bankruptcyThe current unfolding situation is one of a huge pile of money that Bankman-Fried had no control over except pouring it into his personal fortune.

Being skeptical is a lonely job.in virgil Aeneid, Poseidon summoned a serpent to tear Laocoön apart as he tried to warn the Trojans that the horse the Greeks had hoisted up to the Trojan gates was a ruse. These days, crypto skeptics flock with tweets spreading FUD (“Fear, Uncertainty, Doubt”) and mocking themselves as NGMI (not going to succeed). more likely. But for those with a clear eye, the red flags were there.In 2019, a group calling itself Bitcoin Manipulation Abatement LLC sued Alameda Research for market manipulation, but the lawsuit was dismissed. Two years later, another cryptocurrency finance firm accused hedge funds of pumping and dumping digital currencies, but Alameda countered that it had done something wrong. Of course, these seem like warning signs now, but they weren’t the levels of self-dealing that would ultimately implode FTX. The market will continue to rise and rise in 2020 and 2021.

This year was very different.Last year was a party, but who wouldn’t be a little crazy with Bitcoin peaking at his $69,000? billion dollars and Three Arrows Capital, one of the largest cryptocurrency hedge funds on the market, shuts downBankman-Fried suddenly became a lender of last resort, buying or lending to industry players who were liquid or insolvent by the turmoil. The conventional wisdom was that this was the beginning of his SBF empire, and for several months comparisons with the world’s largest investors seemed plausible. But what if the motivation to step in to save other companies is more self-preservation than expansion? I thought it was clear that he was trying to get other people to save money,” he said. “If he could put some money into some of these other businesses that he was in contact with and use other people’s money to support them, he could get the money out. , Clipsten has come to believe that his grand gestures were motivated not by financial strength, but by carefully hidden financial weakness.

Previous crashes have had big winners: Michael Burry quit Big Short in 2008. George Soros saw the Bank of England wind up heading for catastrophe. Crypto investor Ishan Bhaidani, author of The DeFi Roast newsletter, said: short-circuited FTX’s native digital currency in October on FTX’s dominance and skepticism about Bankman-Fried’s scattered attention, among other reasons. He told me that he made $45,000 on a $9,000 bet using 10x leverage. “It’s hard to feel good when so many top companies, projects and investors are so misled,” he told me. and Bankman Freed’s personal rival, Changpong Zhao. The story of Zhao and his Bankman-Fried goes back many years, the former being an early investor in his FTX, but their relationship fell apart as the latter sought greater influence in Washington. . Last year, Zhao withdrew and was partially paid in his FTT, FTX’s own digital currency. This month, these huge FTT holdings have given him the means to keep his FTX in check by lowering the price of the assets that kept the company’s balance sheet. It’s not clear how skeptical CZ was about FTX. But after a revelation by trade magazine CoinDesk With Alameda potentially insolvent, he publicly questioned FTX, starting a cascade that ended in bankruptcy a few days later. CZ said he didn’t sell certain cryptocurrencies that funded Bankman-Fried’s empire, but that doesn’t mean he didn’t make a profit in other ways. (Cohodes and Klippsten said they didn’t make a profit from the crash.) Like most exchanges, Binance is profitable regardless of buys and sells, and fortunately for Zhao, he’s Binance’s establishment of the world’s largest position has led to a surge in traffic. The most liquid crypto exchange. (He has since said he intends to create a fund to help save companies on the verge of collapse from the fallout of Bankman-Fried’s bankruptcy. Recognize?)

Still, finding these kinds of signs can be very difficult. Kevin Zhao was one of the most prominent investors he predicted. TerraUSD and Luna’s April CrashHowever, he missed this. “For the record, yes we had a good amount of money in FTX,” he tweeted from the account of hedge fund Galois Capital. “Sorry, my fault. I thought I was smarter than I was.” condemned. So many fucking socialists have been given the chance to do so much damage. ”

This is not the sudden end of cryptocurrencies — Klippsten and CZ are not leaving the market. (Cohodes was more vague on this question when I spoke with him.) Bitcoin has no value. that Much less than a few weeks ago. However, there has been a noticeable shift in tone on Twitter, with the former FTX chief likely being called a “fraud banker fraud.” The narrative shifts in favor of the skeptics over the people of Big His Ideas trying to change the world. “I did this specifically for society,” Cohorse said. “To rid the earth of this dreadful evil”

Update: This article has been updated to clarify that Klippsten’s business is a Bitcoin-focused financial services company, including Ishan Bhaidani’s successful shorting of FTX’s cryptocurrency.

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