He is only 30 years old, but Sam Bankman-Fried has become the savior the struggling crypto industry needs to avoid a complete shipwreck.
Bankman-Fried, known in crypto circles by the initials SBF, seems to have taken on this persona without hesitation. He is everywhere. It is difficult to talk about a struggling crypto firm without his name appearing as the potential savior to prevent things from going downhill.
Within days, SBF managed to avoid a rout with disastrous consequences for retail investors and the aggravation of an already exacerbated crisis of confidence. Bitcoin, the most popular cryptocurrency, is down 71% since its all-time high in November. Ether, the second-largest digital currency, has lost 77.2% of its value since November. The cryptocurrency market overall has lost over $2.1 trillion in less than eight months.
Bailout of Fintech BlockFi
The fintech BlockFi, which has promised to compete with traditional banks, recently had to cut 20% of its workforce to adapt to a macroeconomic environment undermined by fears of recession and inflation at its highest in 40 years.
Furthermore, falling cryptocurrency prices and the collapse of sister tokens Luna and UST made BlockFi a collateral victim of this disaster. The firm had loaned a large sum of money to crypto hedge fund Three Arrows Capital (3AC). However, the latter has suffered colossal losses linked to its exposure to Luna and has just missed lender margin calls, meaning it couldn't come up with what it owed to its lenders.
A report from the Financial Times indicating that BlockFi was liquidating the loan granted to 3AC has amplified rumors of possible financial problems. BlockFi may have tried to reassure that its customers would not be affected by 3AC's default, but that did not prevent rumors from continuing about its possible liquidity problems.
And it didn't help that a leaked financial document, not confirmed by BlockFi, suggested that the firm has lost more than $285 million over the past two years.
After exploring different options, BlockFi turned to SBF.
"Today @BlockFi signed a term sheet with @FTX_Official to secure a $250M revolving credit facility providing us with access to capital that further bolsters our balance sheet and platform strength," CEO Zac Prince announced on Twitter on June 21.
SBF founded FTX.com, an exchange for cryptocurrency and other crypto products. It's based in the Bahamas where Bankman-Fried resides. FTX, which has an American subsidiary, was valued at $32 billion in its most recent funding round.
'We have a Responsibility'
FTX participates in the democratization of crypto: it has bought naming rights to a sport arena in Miami and Tom Brady and his wife, supermodel Gisele Bundchen, are its ambassadors.
These actions and others by competitors have convinced many retail investors to entrust their savings to lenders, such as BlockFi, Celsius Network or Babel Finance, which are currently encountering difficulties. The latter two suspended fund withdrawals recently, preventing their customers from having access to their money. These decisions raise fears of chaos and contagion to the traditional financial system.
SBF also founded Alameda Ventures which is a quantitative trading firm.
"I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion," the young billionaire told NPR in a recent interview. "Even if we weren't the ones who caused it, or weren't involved in it. I think that's what's healthy for the ecosystem, and I want to do what can help it grow and thrive."
In 2021, when hackers attacked Japanese crypto exchange Liquid and stole nearly $100 million worth of cryptocurrency, FTX stepped in by providing Liquid with $120 million in financing. FTX just closed the acquisition of Liquid.
"We, I think about 24 hours later, stepped in and gave them a pretty broad line of credit to be able to cover all of their demands, to make sure customers were made whole, while thinking about the longer-term solution," SBF told NPR.
SBF's desire to avoid chaos in the sector is also not without interest. His fortune valued at $8.93 billion as of June 28, according to Bloomberg Billionaires Index, is linked to his investments in the cryptocurrency sector. Since January, SBF's fortune has shrunk by $7.29 billion due to falling cryptocurrency prices.
SBF Providing a Lifeline
In addition to BlockFi, SBF has also just given a lifeline to Voyager Digital (VYGVF), another victim of 3AC's default, via Alameda.
Voyager Digital "has accessed US$75 million of the line of credit made available by Alameda and may continue to make use of the Alameda facilities to facilitate customer orders and withdrawals, as needed," the company said.
The young billionaire is also the lifeline of RobinHood (HOOD), which has lost more than $22 billion in market capitalization in less than a year. SBF recently acquired a 7.6% stake in the brokerage firm but rumors are circulating that he is in talks to buy the entire firm. He denies for the moment but in view of the past, it is not excluded that he will become the new majority shareholder soon.
SBF could also get its hands on crypto mining groups like Marathon Digital Holdings and Riot Blockchain. Marathon Digital (MARA) shares have fallen 80% since the firm's IPO on June 29, 2021. Market cap has fallen from $3.39 billion to $620.8 million at the time of this writing. Riot Blockchain (RIOT) shares have crashed 88.3% since June 29, 2021, while market value has melted to $603 million from $5 billion at the end of June 2021.
