This is the most spectacular destruction of wealth ever seen.
In less than a week, Sam Bankman-Fried went from one of the richest men in the world to an average Joe.
Blame it on the collapse of his crypto empire, made up primarily of FTX, an exchange where one could buy and sell bitcoin, ether and other cryptocurrencies. He also owned Alameda Research, a cryptocurrency trading platform, and had stakes in other crypto businesses, including the popular trading app Robinhood.
But all this is worth almost nothing now. FTX and Alameda are insolvent. Their various assets have been seized, while operating licenses have been revoked by regulators. Bankman-Fried resigned on November 11 after FTX filed for Chapter 11 bankruptcy.
But it is uncertain that he will find anyone who wants to get involved in companies on which there are suspicions of fraud.
Here is a guide to understanding this unprecedented crisis.
Abandoned By the Crypto Sphere
It all started with a news article, on November 2, suggesting that Alameda and FTX were not in such good financial health as their boss had previously assured. Four days later, Changpeng Zhao, rival of Bankman-Fried, announced that his company, Binance, would sell $500 million worth of FTT, a cryptocurrency issued by FTX.
This caused panic. Other investors rushed to claim their cryptocurrencies from FTX. About $5 billion would be withdrawn on November 6 from the platform.
Still, the next day, Bankman-Fried assured that his businesses were "fine.". Except that, 24 hours later, Zhao announced that he had reached an agreement with Bankman-Fried to buy his empire.
"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 http://FTX.com and help cover the liquidity crunch," Zhao wrote on November 8.
But the deal was pending due diligence. Opening the books on November 9, Zhao and Binance decided to abandon the transaction. They said that the difficulties of FTX were more serious than expected.
"As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of http://FTX.com," Binance said in a message posted on Twitter on November 9.
"In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help."
ZERO
Since then, it's been a rout.
As a result, the entire fortune of Bankman-Fried, known by the initials SBF in the crypto sphere, has been wiped out. Bloomberg Billionaires Index believes he has lost everything.
To reach this conclusion, Bloomberg says that Alameda, which SBF announced that it was closing, is no longer worth anything. The same appliers for FTX International. As for FTX US, in which SBF held a 70% stake, its value is now only $1. The platform is shutting down. FTX US asked customers on November 10 to close out any positions.
In the Bahamas where SBF lives and FTX.com is based, authorities froze the assets.
This leaves SBF with a 7.6% stake in Robinhood (HOOD), which is valued at $589 million at last check. But Reuters is reporting that this stake was used as collateral for loans through Alameda Research.
With the closure of Alameda, this participation is no longer worth anything either. Bankman-Fried, therefore, has nothing left. He lost a fortune of nearly $16 billion in less than a week.
The consequences of this brutal and spectacular downfall will resonate for a long time on the crypto industry, which wants to disrupt traditional financial services.
