SB, F’ed. FT, X’d

The Spectacular Fall of Sam Bankman-Fried and his FTX Empire. The silver lining for crypto.

written by oz chen

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If you wanted to see a billionaire lose most of his money in real time, then you should’ve seen Sam Bankman-Fried’s Twitter last week.

“SBF,” as he’s commonly known, was the darling of the crypto world. While other crypto firms like BlockFi and Voyager folded, SBF offered to bail them out.

Then a crypto journalist investigated FTX’s books and found some financial fuckery.

In a matter of days, SBF and his crypto empire fell apart. 

  • Nov 7th: SBF tweets “FTX is fine. Assets are fine.” He’s since deleted that tweet.
  • Nov 8th: Literally the next day, SBF announces FTX may get bought out by crypto competitor Binance
  • Nov 9th: Binance only needed one day of due diligence to discover that FTX’s books were completely fucked, and backed away from the acquisition
  • Nov 10th: SBF tweets “I’m sorry…I fucked up.”
  • Nov 11th: FTX files for bankruptcy.
Sam Bankman, Fried.

Simply put, FTX misused customer funds to back bad investments.

Here are my 2 biggest disappointments:

  • This failure sets back crypto adoption. A loss in trust translates to real dollars. SBF was among the most trusted figures in crypto up until a week ago.
  • SBF was supposed to bail out Voyager and was a contender for Celsius. Now that FTX itself is going through bankruptcy, the picture is hazier about whether customers of these other firms will be made whole.

All of this happened in such swift, spectacular fashion that you know a reality TV show is going to be made.

Maybe Justin Timberlake could gain some weight and play SBF.

There’s always a silver lining

A concept that’s important for crypto investors: resiliency. This means that whenever shit hits the fan, does the whole thing break? What recovers and who bounces back?

After each crisis, the crypto industry needs to learn and adapt.

The silver lining is the adoption of new standards for centralized crypto exchanges, like transparent proof of customer funds and never using tokens as collateral (what FTX did with FTT).

I’m optimistic that crypto will continue evolving, become more regulated, and ultimately be safer for customers.

Don’t throw the baby out with the bathwater

I’m not defending any of crypto’s downfalls. I’ve personally lost huge sums in crypto so far. If anyone walks away from crypto and never invests in it, I 100% understand and won’t judge that.

But it’s important to differentiate between the failure of one crypto company/project and the failure of an industry.

Just like Enron went up in flames from fraud, that doesn’t mean the entire stock market is a fraud.

Just because one aspect of crypto failed (centralized exchanges) doesn’t mean all aspects of crypto failed. In fact, the decentralized part of crypto kept running fine.

Here’s my current playbook for buying crypto

  1. Use multiple crypto exchanges so risk isn’t concentrated in one platform (check out Cryptosheet)
  2. Regularly transfer holdings off from exchanges to my own crypto hardware wallet
  3. Whenever a major exchange is exhibiting even the slightest sign of weakness, transfer all crypto out. This is less risky when I do #3.
  4. Don’t chase the hype, which abounds in the crypto world with shiny new objects and ever-riskier gambles. Invest for the long term.

Not investment advice: I continue to buy 50/50 Bitcoin and Ethereum.

If the SBFiasco was any indication, this might be the bottom for crypto. Prices are super depressed. Just like the best time to buy into the stock market is when stocks are down, I think the same applies to crypto.

But I could be completely wrong, so I’m not putting all my eggs in the crypto basket.

A moment of humor

I like to make acronyms or create random meanings from them.

I swear this is true—when I first heard SBF’s name, I immediately thought “surprise butt fuck.”

I wasn’t wrong.

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