Crypto Star Sam Bankman-Fried's Halo Fades Selling Out To Bigger Rival Binance — IBT Analysis

Sam Bankman-Fried became a shining star in the rarefied world of crypto just two years after he founded FTX in 2019. But an eventful year later, when he said outlandish things, such as FTX may one day buy Goldman Sachs and donate a billion dollars to U.S. political races, he is on the brink of losing his firm and even his billionaire status. Forget the embarrassment of selling out to your rival billionaire in crypto.

As per a Bloomberg report, SBF, as the crypto entrepreneur is known, will lose $16 billion of his personal fortune after his firm completes acquisition talks with larger rival Binance. The billionaire, who was once worth $26 billion, saw his wealth deplete by 66% as the crypto market melted. His personal wealth will reportedly drop from $16 billion to slightly less than $1 billion after the deal with Binance is closed.

FTX, under its venture arm FTX Ventures, made significant strides in the crypto space, acquiring a 30% stake in the alternative investment firm Skybridge Capital in September. There were also potential talks of the release of FTX V2 on Nov. 21, along with the release of an FTX-backed stablecoin. However, the firm's very own FTT token collapsed before all this.

As per earlier reports, FT's income surged by more than 1,000%, from $89 million to $1.02 billion in 2021. No one thought the billion-dollar firm would have to sell out to its competitor overnight.

According to crypto analyst Miles Deutscher, the nail in the coffin for SBF's public reputation as a "hero" in the crypto industry was his coming out in support of the DCCPA draft bill, which posed significant threats to DeFi and crypto.

"The public damage for Sam was immense. Sentiment shifted as people realised his intentions may be different from what was first thought. This shift in sentiment was the precursor for what was to come next, and a major contributor behind the severity of the recent FUD," Deutscher said in a Twitter thread Monday.

Binance CEO Changpeng Zhao said FTX, the second largest crypto exchange, and its CEO lost their wealth because they collateralized the token that they created, i.e., FTX Token (FTT).

"Don't borrow if you run a crypto business. Don't use capital 'efficiently.' Have a large reserve. Binance has never used BNB for collateral, and we have never taken on debt," Zhao said Tuesday.

The Bloomberg Billionaires Index shows that Zhao is currently worth $16.4 billion, significantly down from $96 billion in January — but still a multi-billionaire.

As of 12:01 am ET Wednesday, the price of 1 FTT token stood at $4.55, down almost 73% in the last 24 hours, as per CoinMarketCap.

Binance will carefully assess FTX's book before the acquisition

News of Binance's acquisition of FTX comes after rumors of liquidity issues were confirmed by Bankman-Fried.

"This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days," Zhao said Tuesday.

SBF's exchange tried to raise more than $1 billion from Silicon Valley and Wall Street billionaires in the hours before FTX reached out to help from Binance, a report said, citing people familiar with the matter. However, the hole in the balance sheet appeared to be far bigger than could be filled with such quick fixes — closer to $5 billion to $6 billion.

Rumors were already swirling in the crypto community about FTX's insolvency, which were denied by SBF. But huge funds started to leave the exchange as its stablecoin liquidity dropped and Ether (ETH) token withdrawals also touched an all-time high.

SBF thanked Zhao, also known as CZ in the crypto community, for helping out.

"A *huge* thank you to CZ, Binance, and all of our supporters. This is a user-centric development that benefits the entire industry. CZ has done, and will continue to do, an incredible job of building out the global crypto ecosystem, and creating a freer economic world," Bankman-Fried said in a Twitter post Tuesday.

CZ revealed on Twitter that his firm has started to examine FTX's books, and if any discrepancy is found, Binance has the discretion to pull out of the deal at any time. He also warned investors against investing in FTT, saying he expects it to be extremely volatile in the coming days.

Coinbase says his exchange is "different"

Alesia Haas, CFO at Coinbase, the second largest exchange by market capitalization, said in a Tuesday blog that the firm has $15 million in deposits on FTX to facilitate business operations and client trades.

Haas also revealed that Coinbase doesn't have loans on FTX, nor does it hold FTT. The exchange also does not have exposure to FTX's sister trading firm, Alameda Research.

"Coinbase and our customers are not in any direct danger of liquidity or credit risk. Regardless of whether the Binance/FTX transaction completes, we have very little exposure to FTX and we have no exposure to its token, FTT. Currently, we have $15 million worth of deposits on FTX to facilitate business operations and client trades. We have no exposure to Alameda Research, and we have no loans to FTX," Haas said in the blog post.

FTX was a direct rival to Binance and Coinbase but has now been pushed to the third position by spot trading volume in the crypto market. It had even aimed to raise $1 billion at a previous valuation of $32 billion, according to September reports.

Bankman-Fried also had plans to initiate acquisition deals.

"We had a couple billion going into this [acquisition], and it lines up roughly with the amount that we've raised over the last year and on top of that we've been profitable," he said in September.

Taking into account the liquidity crises at FTX, Haas said, "as a publicly traded company in the US, we've also built our business in a way that allows us to be transparent about our track record, balance sheet strength, and effectively and prudently manage risk for our customers and ourselves."

Withdrawals have been paused

Withdrawals from FTX have been halted after the platform saw around $6 billion of withdrawals in the 72 hours before Tuesday morning, Reuters reported.

In a message to FTX's staff, the firm's CEO stated that the exchange had signed a non-binding agreement with Binance, which gives the latter the opportunity to purchase Bankman-Fried's exchange.

"On an average day, we have tens of millions of dollars of net in/outflows. Things were mostly average until this weekend, a few days ago," Bankman-Fried wrote in the message. In the last 72 hours, we've had roughly $6b of net withdrawals from FTX."

Additionally, in a letter to the investors, Bankman-Fried said that the exchange's first priority is the protection of its customers and their funds.

"Our first priority is to protect customers and the industry; we'll soon be focusing on our second priority: our shareholders," he stated.

Crypto investors pointed out that they are disappointed in FTX shutting down withdrawals. A crypto investor who has more than half a million followers and goes by the name @cryptokaleo stated that he took a huge loss.

"I took a huge loss, and an exchange I trusted for years is at the center of one of the largest bank runs we've witnessed in crypto. I know I'm not the only impacted by this, & my heart goes out to others in a similar situation," the investor wrote.