Tom Brady, Sam Bankman-Fried, and Cryptoworld Lose Big in FTX Meltdown
People are losing money — faith — with cryptocurrency.
Sam Bankman-Fried, the previously lauded billionaire and CEO of cryptocurrency exchange FTX, saw his fortune and confidence in his platform tumble after a CoinDesk article revealed that a company he also owned was heavily dependent on an asset without independent value, leading to panic from FTX customers and in the crypto world, in general, this week. One fear was that FTX would not be solvent, meaning that customers wouldn’t be able to withdraw their coins from the platform. The CEO Bankman-Fried denied these rumors on Monday in a now-deleted Tweet.
In a surprising sequence of events, however a competing company, Binance moved to rescue FTX on Tuesday by buying it. Then, in yet another plot twist, news emerged Wednesday that Binance could back out of rescuing FTX after all, CoinDesk reported, citing an unnamed source.
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 https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
“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,” the company wrote. This leaves FTX in a very strange place. On Thursday morning, FTX CEO Bankman-Fried apologized for and explained his take on the situation in a long Twitter thread, saying he made mistakes with liquidity that affects, he claimed, just users of FTX International, and that he plans to spend the week raising money to be able to cover user deposits.
4) FTX International currently has a total market value of assets/collateral higher than client deposits (moves with prices!). But that’s not the same as liquidity for delivery–as you will see from the state of withdrawals. There are many levels of liquidity, from very little to very large.
— SBF (@SBF_FTX) November 10, 2022
“Anyway: right now, my #1 priority–by far–is doing right by users,” he wrote. “So, right now we’re spending the week trying to raise liquidity …..” We are in discussions with a number players. “
It remains to be seen if this is the true extent of the problem or if FTX will find a buyer to pay international users’ deposits. He has also told investors he needs $8 billion to cover a “bank run” on the platform.
The saga has been a bucket of cold water for crypto investors, says micro crypto influencer and longtime token-holder in the space, Tiffany Fong. It is shocking to see a company that many of us thought was optimistic and hopeful have such problems and have such a illiquid balance sheet,” she stated.
The anxiety inherent to the FTX episode can be traced back to the fall of fellow crypto exchange Celsius, which filed for bankruptcy in July, trapping the assets of its users, and the general decline of the value of cryptocurrency, which has been hammered by the instability of the wider economic environment. Bitcoin, a flagship coin, for example, has dropped 18% since the beginning of the FTX saga last week and has lost 65% of its value since the beginning of this year.
What’s going on with FTX?
FTX and Binance are both cryptocurrency exchanges. They can be used to swap coins from one currency to the other. Both also offer other types of products, like leveraged tokens, which are theoretically less risky crypto assets. Prior to Binance’s plan to buy the company, the companies were thought to be rivals. Then things got worse for FTX. Last week, CoinDesk published a story that noted a company very closely linked to FTX, Alameda Research, which is Bankman-Fried’s research firm, (it is like a crypto hedge fund of sorts that trades crypto assets on a larger scale and is not accessible to everyday retail investors) had a very large portion of its assets as the cryptocurrency coin FTX itself had created, called FTT. There’s nothing wrong with that, CoinDesk said. However, it’s almost as if your wealth is based only on what you claim it has, rather than something that has objective market value. This scared people. Fong said she had started to hear rumors on Twitter of the platform’s insolvency even before the article came out — and then, after the CoinDesk piece, Binance announced Sunday it would sell all of its FTT. Customers then began withdrawing money from FTX and people began to sell FTT, further driving down the price of FTT — and, theoretically, the value of Alameda. Then, in an angel moment of opportunity, rival trading platform Binance swooped into the picture. On Tuesday, Bankman-Fried and Binance CEO Changpeng Zhao tweeted that they had signed a non-binding statement of intent for Binance’s acquisition of FTX.
CoinDesk then reported Wednesday, citing an anonymous source, said Binance was considering ditching the acquisition after getting a look at the company’s financials, which Binance later that day confirmed in its own Tweet. This is not good news for anyone involved in FTX.
This is not a good time for FTX participants.
Bankman-Fried lost almost 94% of his fortune, some $14 billion, because of the debacle. Tom Brady publicly invested in FTX and was an influencer for the company, so the money he has put into the platform is also at risk, per Yahoo Finance.
It’s unclear how much Brady and his now ex-wife Gisele Bundchen, who also signed an endorsement deal with the company, sunk into FTX or how much they lost.
BREAKING: Crypto exchange FTX has announced an endorsement deal with Tom Brady & Gisele Bundchen. Both Brady and Bundchen will be eligible for equity in FTX as well as a signing bonus.
In total, FTX has committed to spending over $350M on sports partnerships in the last 6 months alone
— Joe Pompliano (@JoePompliano) June 29, 2021
Previously, FTX and Bankman-Fried were seen as the “white knights,” as Fong put it, as Bankman-Fried had dived to rescue via buying struggling competitor Voyager Digital. She said that finding out that FTX needed to be rescued was troubling.
It is possible Brady and Bundchen could even face questions about how much they knew about shaky business foundations, as crypto-astrologer-influencer Maren Altman has about Celsius.
More official sources are also appearing to be looking into Bloomberg Law reported Wednesday that two U.S. government entities, the Securities and Exchange Commission and the Commodity Futures Trading Commission, are looking into FTX over questions about its liquidity.
In Bankman-Fried’s Twitter thread on Thursday, he explained how he miscalculated the platform’s liquidity. Alameda Research, his crypto trading fund, was also mentioned as “winding down.” “
6) My sense before:
USD liquidity ready to deliver: 24x average daily withdrawals
Liquidity: 0.8x Sunday’s withdrawals
Because, of course, when it rains, it pours. On Sunday, we saw $5b in withdrawals. This was the largest by a wide margin.
— SBF (@SBF_FTX) November 10, 2022
“And so we are where we are. This is a suck, and that’s on you. He wrote, “I’m sorry.” Crypto entrepreneur and “whiz kid” Justin Sun has also said he’s working with the platform trying to help solve the issue. Despite her love for decentralized finance, it’s been a difficult day for Fong. Although she did not have any significant coins in FTX, Fong lost about $200,000 in the Celsius debacle, and that, combined with the FTX drama, has her questioning her confidence in some of the currencies. After this, “people are losing faith in crypto overall,” she stated.
The author of 5 books, 3 of which are New York Times bestsellers. I’ve been published in more than 100 newspapers and magazines and am a frequent commentator on NPR.