It was a stunning fall for a celebrated executive who was leading the crypto industry’s charge into the mainstream of finance.
Over the last two years, Sam Bankman-Fried, a 30-year-old entrepreneur, built a crypto exchange called FTX into a $32 billion company. He spent hundreds of millions of dollars to prop up struggling crypto firms. And he became a major political donor to Joe Biden’s presidential campaign as well as a frequent, welcome presence in the halls of Congress.
Then, in a matter of days, it was suddenly Bankman-Fried who needed a bailout, thanks in large part to Twitter posts from a rival that questioned the stability of FTX’s business. The tweets sparked what was essentially a three-day bank run of an estimated $6 billion that sent FTX into crisis.
The rival, Changpeng Zhao, the CEO of a bigger crypto exchange called Binance, agreed to bail out FTX. But FTX’s future grew murkier Wednesday when Binance abruptly said the deal was off. Without much explanation, the company said in a statement that its executives changed their minds because of regulatory concerns and issues with “corporate due diligence.”
The deal’s collapse has sent shudders through the entire crypto industry. The uncertainty around the future of FTX has become an existential threat to young crypto businesses as they struggle to convince Wall Street, regulators and mainstream consumers that they are trustworthy. As news spread of FTX’s collapse, crypto markets took a battering, with bitcoin and ether both dropping more than 20% in value since Tuesday.
While the size of the hole in FTX’s balance sheet will ultimately depend on the amount that customers were able to withdraw, it could be as much as $8 billion, according to a person familiar with the figures, who was not authorised to discuss them.
Many of crypto’s foundational myths have already been punctured this year, and FTX’s rapid fall suggests that no company in this freewheeling, loosely regulated industry is safe from extreme volatility.
FTX declined to comment on Binance’s pullout from the deal.