SBF has been arrested

What’s next for FTX and Alameda Research?

Setting the (official?) world record for the most significant drop in net worth within 12 months, going from a reported estimate of $20 billion at its peak (up to $32B apparently) to now less than $100,000, according to Sam Bankman-Fried’s claims.

How did we get here?

As a quick recap, the FTX exchange and its affiliated entity Alameda Research, have mismanaged billions of dollars of customer funds in multiple ways.

Clients withdrew a whopping $6 billion worth of crypto in 72 hours, leading to an abrupt halt in further withdrawals on 8 November.

Changpeng Zhao, a.k.a. “CZ”, the CEO of Binance, initially expressed the intention to purchase FTX to renege on the idea; a wise move, in my opinion.

People can get upset with CZ for this move, but the onus remains on SBF and other protagonists involved in this saga.

SBF, the former CEO of what was once a significant exchange globally, has been arrested and will most likely be extradited to the US from the Bahamas, where FTX is based.

Another fascinating aspect of this story is the reported millions of dollars in donations he made to not just Democrats but even Republicans. However, some of these are reportedly regifting their received donations after the FTX collapse to avoid a negative association with him.

A smart move, particularly during some turbulent times in US politics, not to mention general reputational damage by accepting the funds despite knowing what has happened with him and his former company.

Why is this significant?

Firstly, this scandal, in tandem with the major collapse of Luna Classic and its algorithmic stablecoin, Terra Classic (formerly Luna and Terra, respectively), has significantly contributed to significant losses across the entire cryptocurrency market; including top-10 assets such as BTC, ETH, ADA and BNB to name a few.

Secondly, and perhaps more importantly, repeated cases of scams and widespread losses of customer funds further erode confidence in this sector.

This also shines a light on consumer protections for those in the crypto space. The current (fill-in) CEO, John Jay Ray III, explains the magnitude of this situation in one quote.

“Never in my career have I seen such a complete failure of corporate controls and a complete absence of trustworthy financial information as occurred here.”

What’s next for SBF, FTX and Alameda Research?

Last week, the former CEO agreed to be questioned by the House Services Financial Committee this Tuesday, 13 December, with the latest reports saying it will go ahead.

Besides SBF, Ray III will also be required to testify.

Moreover, the US Senate Committee on Banking, Housing, and Urban Affairs Chairman had compelled him to provide testimony in due course by threatening to issue a subpoena otherwise in a letter addressed to Bankman-Fried.

Photo by Quick PS on Unsplash

Clients, let alone the general public, want answers to this shambolic situation, so this does not come as any surprise.

As per the hearing, another major player in all of this is Caroline Ellison, the previous CEO of Alameda Research, who was reportedly an ex-girlfriend of SBF.

What doesn’t help is that Ellison, Bankman-Fried and other workers of FTX were allegedly involved in a peculiar web of intimate relationships.

Think twice before mixing business with pleasure, especially when you’re a bunch of young adults managing billions of dollars of customer funds.

I expect, like the Ripple vs SEC case (which has been dragging on for years now), that investigations into the FTX/Alameda collapse and abysmal management of client funds overall will go on for several months, if not years.

Concluding thoughts

I anticipate that lawyers defending FTX and Alameda will strike a staunch fight, although there is (what appears to be) gross negligence involved here.

To date, SBF seems to be digging his hole deeper by the day, interreacting with various journalists and doing interviews to try and justify what has happened, albeit very poorly. He is oblivious that much of what he says could easily be used against him in court.

This opinion piece from Bloomberg Law and the quote from Ray III say it all. 

There is much good to come out of this from an investor’s perspective (both retail and institutional), especially for greater scrutiny and more auditing of centralised exchanges.

I am writing to provide you with a quick update about this topic, owing to the time-sensitive nature of the content.

None of this is financial advice, and I am not a financial advisor. 

This piece contains news and opinions from either myself or the sources mentioned here. Please research before investing in any crypto assets, NFTs and any product affiliated with this space.

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Image by Dkoi on Shutterstock, with relevant licence.