But it has also foisted on the global economy a long list of misguided saviors, false prophets and outright frauds. The confluence of hoped-for mega-returns and heedless disregard for potential problems appears to be the fallow ground in which such leadership failures and their consequent financial implosions are bred. JL
Edward Ongweso and colleagues report in Motherboard:
30 year old Sam Bankman-Fried was, according to magazine covers "the next Warren Buffett," and would be "the world's first trillionaire." Now, Bankman-Fried and his cryptocurrency exchange FTX have imploded, his $16 billion net worth written off to mismanagement. He did not have a handle on how his exchange was operating. Crypto has shown astounding resilience. Its zealots are never-ending, even as reporting of rampant fraud continues unabated. He has been revealed as the latest in a long line of hyped tech leaders leaving destruction in their wake. (But) "There’s gonna be a VC that backs Sam in18 months, two years. The chances of him founding another company is very high.”Thirty-year-old Sam Bankman-Fried is crypto’s wunderkind. A flurry of well-placed puff pieces laid the ground for a reputation as a genius—a slightly awkward space cadet, but a genius nonetheless—who seemed to have his hands in everything, everywhere, all at once. He was, according to various articles and magazine covers published shockingly recently, "the next Warren Buffett," and would soon be "the world's first trillionaire."
Bankman-Fried has not just been described as a "savior" of crypto by his financial backers but canonized as a man who would somehow save the world as the face of the "effective altruism" movement favored by Silicon Valley's elite, which posits that the most ethical thing a person can do is amass as much power and wealth as is possible so that they can then donate it "effectively" to create greater social change than can be done with, say, taxes, political change, or standard charitable giving. He was a top political donor—he gave millions to support the Biden campaign, although he says he's donated on both sides of the aisle—and his supposed benevolence became core to his public image. One viral YouTube video with 1.5 million views is called "The Most Generous Billionaire" and features Bankman-Fried handing out money on the street."I think he had a certain mystique about him. People thought he was sort of the responsible, brilliant crypto billionaire," Hilary Allen, a law professor at the American University, Washington College of Law, told Motherboard. "That mystique, I think, gave him a lot of credibility to argue for special regulatory treatment for crypto."
Now, Bankman-Fried and his cryptocurrency exchange FTX have imploded spectacularly, his vast $16 billion net worth all but written off completely due to his admitted financial mismanagement. Instead of the chosen one, he has been revealed as just the latest in a long line of poster children for how the tech industry hypes up individuals who can talk a good game but who invariably leave destruction in their wake.
Despite his stature in the public eye, Bankman-Fried burst onto the scene fairly recently.
He traded securities before quitting in 2017 and started working at a charity called the Center for Effective Altruism. Soon after, at the age of 25, he founded Alameda Research, his crypto trading firm, to exploit arbitrage opportunities in the price of Bitcoin in different countries. In 2019, he founded FTX, an initially Hong Kong-based crypto exchange for international investors, and soon secured backing from investors including Sequoia Capital and Binance, the largest crypto exchange in the world that would become FTX's chief competition. FTX later moved to the Bahamas, launched FTX.US for American investors, and in 2022 kicked off a $2 billion venture fund called FTX Ventures.
FTX's backers were eager to promote the image of Bankman-Fried as a world-historical business and financial genius—a schlubby Zuckerberg-type freshly emerged from his dorm, but for cryptocurrencies. The most absurd Bankman-Fried hagiography came from an article published by Sequoia Capital, which led a $400 million fundraising round for FTX and valued it at $32 billion—the firm's second investment in FTX. In September (September!), the fund’s magazine ran a breathless profile of Bankman-Fried titled "FTX's SBF Has a Savior Complex, And Maybe You Should Too.” In the article, author Adam Fisher fawns for thousands of words and describes Bankman-Fried's absurd risk-taking as a gambit designed to literally save the world.
“He had to find a risk-neutral career path—which, if we strip away the trader-jargon, actually means he felt he needed to take on a lot more risk in the hopes of becoming part of the global elite. The math couldn’t be clearer,” Fisher wrote. “Very high risk multiplied by dynastic wealth trumps low risk multiplied by mere rich-guy wealth. To do the most good for the world, SBF needed to find a path on which he’d be a coin toss away from going totally bust.”
When Fisher begins interviewing Bankman-Fried—he spent a week with him in the Bahamas—the first question is, "Am I talking to the world's first trillionaire?" It's an opener Fisher admits is "a stupid question," but insists is actually smart because "he's only gotten started" and was already wealthier than 80 percent of the world's billionaires. In his response, Bankman-Fried quickly drifts to discussion of wealth and charity's diminishing returns. Fisher is enraptured.
"This interview has morphed into my own personal economics seminar, and Professor Bankman-Fried is my tutor," Fisher wrote. "He’s as good at explaining the principles of macroeconomics as anyone out there in the world today—and I know this for a fact because I’ve subsequently watched YouTube’s best on the same subject. But SBF teaches me Macro while simultaneously playing round after round of [the video game] Storybook Brawl.”
At one point, Fisher gets ahead of himself and posits that FTX could soon be a financial juggernaut on the level of major banks: "Nothing is a sure bet, but just the possibility that FTX could join—or even eclipse—the big four of American banking (JPMorgan Chase, Bank of America, Wells Fargo and Citibank) means it's already valued at $32 billion.”
In one meeting recounted in the profile, Bankman-Fried pitches FTX to Sequoia partners as a place where "you can do anything you want with your next dollar" whether that's buy other crypto or "a banana." Partners eat it up, drooling over the delusion that FTX would realize "a total addressable market of every person on the entire planet" but when one partner walked over to him in a trance over the presentation, they realized "the fucker was playing League of Legends through the entire meeting."
Fisher’s week-long adventure with Bankman-Fried and the people around him is probably the most intimate portrait of the FTX founder, and it suffers for it: It tries to convince us Bankman-Fried is a enigmatic figure possessed by a desire to do good in this world and occupied with concerns that sit somewhere above our mortal coil. He’s playing video games during meetings and interviews because he doesn’t care about convention, he cares about helping people.
Sequoia’s adventure with Bankman-Fried seems to have ended on Thursday, however, when it scrubbed Fisher's story from its website and replaced it with a much more somber disclosure:
“A liquidity crunch has created solvency risk for FTX and its future is uncertain. Many have been affected by this unexpected turn of events. For Sequoia, our fiduciary responsibility is to our [liquidity providers]. To that end, we shared this letter with them today regarding our investment in FTX. For FTX, we believe its fiduciary responsibility is first to its customers, and second to its shareholders. As such, FTX is exploring all opportunities to ensure its customers are able to recover their funds as quickly as possible.”
In a letter to its limited partners, Sequoia revealed its $150 million investment in FTX was now worthless. "In recent days, a liquidity crunch has created solvency risk for FTX. The full nature and extent of this risk is not known at this time," Sequoia's team wrote. "Based on our current understanding, we are marking our investment down to $0."
Wednesday, after FTX's disaster came to light and his fawning article became one of the more dunked on pieces of written content in recent memory, Fisher tweeted, "A bad day for #SBF but even worse for [effective altruism]. Is this #utilitarianism as psychological cover to run a bad #Ponzi scheme?"
Of his article, Fisher tweeted: "It's cringe-y in retrospect."
"You have somebody who looks like a wunderkind, where you’ve got Sequoia writing these articles like, 'Oh my God, am I sitting next to the first trillionaire?" Zoe Barry, founder of a crypto trading platform called Zingeroo, told Motherboard. "As opposed to saying, like, 'Hey, that’s weird. How did you become a billionaire in like 18 months?'”
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Part of Bankman-Fried's reputation as a "good guy" in the industry came from his efforts to save the cryptocurrency ecosystem from a cascading wave of liquidity crunches this year. Using his wealth, he bailed out multiple collapsing crypto firms and is credited with staving off an even deeper rout in crypto prices more generally.
Ironically, Bankman-Fried is in the middle of his own liquidity crunch right now, seemingly caused in whole or in part by these decisions. Over the course of the past two days, more than 90 percent of his wealth has evaporated as it was reported that FTX was effectively gambling with money customers deposited in the exchange; the man who would be the world's first trillionaire is now no longer even a billionaire, and, like with so many other crypto-geniuses, investors who trusted him are paying the price.
All this was sparked by reporting from Coindesk which revealed Alameda Research had over half of its $15 billion portfolio in FTT—FTX’s crypto token that it prints itself. Both firms were thus essentially intertwined, and were involved in complex financial schemes that left both the fund and FTX severely exposed. Reuters reported, for example, that Bankman-Fried's crypto bailouts proved disastrous, and that FTX injected billions of dollars worth of crypto—including customer funds—into the fund to cover the losses. He reportedly kept this a secret even from other FTX executives.
"If these things are true, that he took customer's money and moved it over to Alameda and used it for all these pet projects, it's just gonna get worse and worse," John Reed Stark, who spent nearly two decades at the SEC rooting out online fraud, including 11 years as the founding chief of the agency’s Office of Internet Enforcement, told Motherboard. "And I can't imagine the criminal authorities aren't sitting around, drawing up a plan, getting their cooperators, getting informants, finding their whistleblowers, and executing search warrants. I just can't imagine that not being the case."
"Let's just say, Warren Buffett owned the NASDAQ or the NYSE," Bruce Mizrach, an economics professor at Rutgers University who studies cryptocurrencies, said. "And at the same time that Warren Buffett owns the NYSE or NASDAQ, he also owns a proprietary trading firm, which actually trades in the same space."
Things worsened over the weekend when the price of FTT cratered after Binance CEO Changpeng Zhao announced his intent to sell a hoard of tokens it got from exiting its equity position in FTX in 2021. On Sunday, as Bankman-Fried explained in a Twitter thread for the ages, customers attempted to withdraw their money from FTX and the exchange did not have enough liquidity in US Dollars to cover it.
He claimed in this thread that he "fucked up" because of "poor internal labeling of bank-related accounts" and underestimated the amount of leverage—trading using borrowed funds with more upside, but also more room to fall—on the exchange. In effect, Bankman-Fried claimed that he simply did not have a handle on how his exchange was operating.
After it became clear that FTX was in financial trouble and could not honor withdrawals, Binance offered to acquire FTX in a non-binding agreement to rescue the exchange. Binance took one look at FTX’s books—although it's not clear what could have substantially changed the clear picture of an illiquid exchange—and backed out from a deal the very next day.
In response to all this, there’s been a lot of incredulous outrage and shock that Bankman-Fried was doing what the cryptocurrency companies he bailed out were also doing—that is, making risky bets and putting customers at risk. The lion’s share comes from crypto enthusiasts who seem to be experiencing amnesia: How, they ask, could FTX betray them and do what Celsius did, what Voyager did, what Three Arrows did, and what BlockFi did?
What is more illuminating and productive is to look back at Bankman-Fried’s various media tours to see if there was something, anything, that might’ve warned us about this earlier. It's hard not to come to the conclusion that the fawning hagiography of the young entrepreneur even as his industry collapsed around him was itself the warning klaxon blaring.
He’s been on the cover of Forbes and Fortune, with the latter's cover asking: "THE NEXT WARREN BUFFETT?" The Wall Street Journal reported on how he was spending $1 billion to save crypto, Vox interviewed him about why he became a political megadonor last year, Bloomberg profiled him about his stated desire to give away his money and described a person who apparently used to forget to shower, continues to work at a desk littered with trash and old food and yet, came away with the ideas that "he’s a kind of crypto Robin Hood, beating the rich at their own game to win money for capitalism’s losers," and "he's kind of like a strange sort of capitalist monk."
He figures prominently in the New Yorker’s profile of the effective altruism movement and its main prophet William MacAskill—who founded the charity Bankman-Fried briefly worked at before founding Alameda. There it’s noted Bankman-Fried “had longtermist views before they held sway over MacAskill, and has always been, MacAskill remembers, ‘particularly excited by pandemics.’” In the same profile, Bankman-Fried dismisses “neartermist causes—global health and poverty—to be more emotionally driven” and emphasizes that focus must be put on longtermism.
“The majority of donations should go to places with a longtermist mind-set,” Bankman-Fried told the New Yorker. “I want to be careful about being too dictatorial about it, or too prescriptive about how other people should feel. But I did feel like the longtermist argument was very compelling. I couldn’t refute it. It was clearly the right thing."
Bankman-Fried appeared in a Vox profile of effective altruism, made an appearance in Elon Musk’s published text messages, and somehow got an investment from Masayoshi Son’s SoftBank Vision Fund. He cultivated relationships with politicians, regulators, financiers, leveraging his money into influence he hoped would secure more crypto-friendly regulations for the industry. Even Bankman-Fried seems to have believed the hype, telling the Financial Times that he would buy Goldman Sachs one day.
Even his firm's marketing nominally had a charitable angle. Miami-Dade County agreed to rename the American Airlines Arena the FTX Arena. The $90 million deal included carve outs to reduce gun violence and to benefit the local community; now, Miami-Dade is currently unclear about whether it is going to get paid.
In April, Bankman-Fried's FTX threw the glitzy CryptoBahamas conference, where he spoke with Bill Clinton and Tony Blair onstage, and got Tom Brady, Gisele Bündchen, various executives from major sports leagues, crypto companies, and VC firms to attend. In addition to his political donations, FTX stepped up its lobbying game in D.C.—in 2022, the firm spent over $600,000 on lobbying.
"It all seemed very chummy," Allen, the American University law professor, told Motherboard. "I don't want to cast aspersions on the people he was meeting with, but he had a lot of access.. And so when you have a lot of access, you have opportunities to describe your version of events."
"I have been concerned about FTX’s influence in Washington for a long time," she added. "It has been probably one of the most effective lobbying voices for crypto light-touch regulation."
At the same time, details began to trickle out that suggested Bankman-Fried might not entirely be the benevolent hero that he appeared. In April, the FTX founder proudly described a core part of his industry as a scheme that sounds a lot like a Ponzi to a shocked audience on Bloomberg’s Odd Lots podcast. Although some in the industry were perturbed by this, what mattered was that FTX and its founder continued to help maintain confidence in the industry via lobbying and bailouts. "He was definitely seen as like a white knight for crypto, you know, boy genius-type situation," Adam Struck, founder of the Struck Crypto venture capital fund, told Motherboard.
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In hindsight, it's a wonder that more people didn’t step back and think about the implications of a self-declared utilitarian regularly engaging in glowing PR spin of his actions in an industry rife with fraud.
Part of that may be down to his long-espoused personal philosophy. Bankman-Fried prides himself on being an effective altruist, but specifically the more recently developed "longtermism" variant that basically posits preventing human extinction as the most important cause to spend money on. It's an idea that other elites, such as Elon Musk, subscribe to.
The argument boils down to the idea that it is more important to save a potentially infinite number of future human lives than to, say, reduce or end human suffering today. To that end, Bankman-Fried decided to go all-in on an industry that he promises will over the long-term transform humanity. That appeared to hold even if, in the short-term, it resulted in speculative bubbles, bank runs, rug pulls, pump and dumps, and other fraudulent events that hurt a lot of people.
As far back as 2013, Stanford Social Innovation Review called effective altruism “elitist philanthropy” and "an approach that not only unjustifiably claims the moral high ground in giving decisions, but also implements this bold claim by weighing causes and beneficiaries against one another. In this, it is not moral, but rather, moralistic in the worst sense of the word… its approach amounts to little more than charitable imperialism, whereby 'my cause' is just, and yours is—to one degree or another—a waste of precious resources."
Sometimes that means convincing college students to become investment bankers so they can maximize their charitable contributions. Other times that might mean dismissing the need to prioritize addressing climate change because that it won’t be as destructive as an asteroid one day hitting Earth.
For Bankman-Fried, that may have meant creating a cryptocurrency exchange that could make as much money as is humanly possible, even if it meant intertwining it with another trading firm in a precarious symbiotic union that has now resulted in disaster.
When you get down to it, there was little reason to believe Bankman-Fried when he said he wanted to save the world—much like there was little reason to believe Facebook, Google, or any other tech companies when they said they wanted to make the world better, or to not be evil.
When tech companies made this claim, they were trying to buy time to build unassailable monopolies that would deliver hundreds of billions of dollars of profit and unprecedented power over how workplaces, cities, governments, and digital spaces were operated. When crypto executives like Bankman-Fried made these same pronouncements—even if he, in particular, really believed it—it bought more time to keep trading magic beans while amassing power, wealth, and legitimacy while lobbying for light-touch regulations.
There are no excuses for anyone in this entire debacle, and on top of this it’s also unlikely that we will learn anything from this. Crypto has shown an astounding resilience when it comes to surviving (albeit in diminished forms) scandal after scandal. Its zealots are never-ending, and regulators have so far seemed uninterested in mounting easy trophies on the wall even as reporting piles up suggesting rampant fraud has continued unabated throughout the industry despite the ongoing market downturn.
Already, Bankman-Fried is tweeting about how he will "continue fighting" and how he has engaged "step one" of a recovery process that will return liquidity to his customers.
More people are going to get hurt by Bankman-Fried as the FTX fallout continues, and by people like him. But that’s the point: When they say they are going to save the world, it’s not the world me or you live in, it’s the world where they get to do whatever they want with few consequences.
"There’s gonna be a VC that backs Sam in six months, 18 months, two years," Barry said. "The chances of him founding another company again is very high.”
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