FTX CEO Sam Bankman-Fried has been looking for bargains amid the business’s current carnage and stated he still has money to spend if alternative knocks.
It might appear unusual. Different multibillion-dollar crypto giants spiraled into chapter 11 this 12 months. FTX’s fundamental competitor, Coinbase, has seen its shares plunge 70% and has laid off a fifth of its workforce as crypto costs crashed.
But, FTX is in some way rising as an business lifeline.
The 30-year-old billionaire says it was a results of stashing away ample money, maintaining overhead low, avoiding lending and with the ability to transfer rapidly as a personal firm.
“It was important that the industry get through this in one piece,” Bankman-Fried advised CNBC in an interview at FTX headquarters in Nassau, Bahamas. “It’s not going to be good for anyone long term if we have real pain and real blowouts — it’s not fair to customers and it’s not going to be good for regulation.”
The crypto business noticed billions of {dollars} worn out throughout the weeks surrounding the implosion of cryptocurrency Terra USD and the failure of crypto hedge fund Three Arrows Capital. Lenders with publicity to Three Arrows have been the subsequent domino to fall. In July, FTX signed a deal that offers it the possibility to purchase lender BlockFi after offering a $250 million line of credit score. FTX additionally prolonged $500 million to struggling Voyager Digital, which later declared chapter, and was in discussions to accumulate South Korean crypto trade Bithumb.
Bitcoin, the world’s largest cryptocurrency, has misplaced greater than half its worth this 12 months.
‘Not immune’
Whereas Bankman-Fried’s cryptocurrency trade FTX is affected by the downturn in digital belongings, he stated market share progress helped offset the ache.
“I don’t think we’re immune from it,” Bankman-Fried stated. “But we put a lot of work in to growing our footprint over the last year … and we have a less retail-heavy platform — retail tends to be more market sentiment dependent.”
Most of FTX’s quantity comes from clients buying and selling “at least” $100,000 per day, he stated. Bankman-Fried described the group as “highly engaged, high volume” customers which can be “fairly sophisticated.” It ranges from small quant buying and selling companies to household workplaces and day merchants. FTX’s demographic has been much less value delicate and held up comparatively effectively in crypto’s bear market, in keeping with the firm.
Along with its success with skilled merchants, it is making an costly land seize for the U.S. retail buying and selling viewers. FTX purchased the the naming rights to the Miami Warmth’s NBA area, previously American Airways Heart. It has courted high-profile traders and model ambassadors together with Tom Brady and Gisele Bundchen, and ran a Tremendous Bowl advert that includes Larry David.
The cryptocurrency trade introduced in roughly a billion {dollars} in income final 12 months, CNBC reported in August. Bankman-Fried confirmed the numbers were in the “right ballpark” and this year would see a “similar” figure, depending on how severe the market slowdown is. He also said the company is profitable.
He pointed to low employee head count as one factor accounting for profitability. FTX has roughly 350 employees — about a tenth of Coinbase’s workforce.
“We’ve always tried to grow in a sustainable way — I’ve always been deeply suspicious of negative unit economics, any economics without any sort of real, clear pathway to profitability,” he said. “We hired a lot less than most places did but we’ve also kind of kept our costs under control.”
Bankman-Fried earned a degree in physics from the Massachusetts Institute of Technology and started his career as a quantitative trader at Jane Street Capital. He bought his first bitcoin five years ago, and said he was drawn to the industry by wide arbitrage opportunities that seemed “too good to be true.” In 2017, Bankman-Fried launched proprietary trading firm Alameda Research to start trading the asset full time. The firm was making a million dollars a day in some cases, buying on an exchange in one market, and selling back on other global exchanges, according to the CEO.
Alameda Research still accounts for about 6% of FTX’s exchange volumes, according to documents seen by CNBC. While Bankman-Fried is still a major shareholder in Alameda, he stepped down from day-to-day operations.
Bankman-Fried said he’s worked over the past few years to eliminate conflicts of interest at Alameda. “I don’t run Alameda anymore — none of FTX does. We view it as a neutral piece of market infrastructure.”
FTX has seen epic growth since Bankman-Fried launched it alongside co-founder Gary Wang in 2019. It last raised $400 million in January at a $32 billion valuation, bringing its total venture capital funding in the past three years to about $2 billion.
FTX Trading Ltd. is headquartered in Antigua, with FTX Derivatives Markets based in the Bahamas, where Bankman-Fried lives. FTX Trading has acquired companies in Switzerland, Australia, Cyprus, Germany, Gibraltar, Singapore, Turkey and the United Arab Emirates, among other countries.
The exchange has spent about half of its cash on bailouts and acquisitions, most recently buying a 30% stake in Anthony Scaramucci’s Skybridge Capital.
“We still have a fair bit left to deploy, if and when it’s useful or important,” Bankman-Fried said.
Three-day deals
FTX benefited from being a private company this year. FTX doesn’t have the daily ups and downs of a publicly traded stock, especially growth names, which this year have been battered by higher interest rates. Bankman-Fried also said not having thousands of shareholders enabled FTX to move quickly when trying to close deals in a matter of days.
“I do think it makes it a lot harder, practically speaking, to do this as a public company,” he said. When “you have three days from start to finish to wire the money, you can’t do a public engagement process around the potential terms of a messy situation.”
Bankman-Fried said many of the deals were done in a matter of days, when the team “didn’t sleep much that week.” What’s often lengthy due diligence came instead in a truncated Excel spreadsheet. The finances weren’t audited. The team had at least some expectation of losing money.
“It was unclear if it would be net positive or negative — there was potential upside in a case where things went well,” he said. “We got to the point of feeling like we could do something that would have a nontrivial chance of helping for an amount of money that we were willing to lose if things went wrong.”
It’s too soon to tell if Bankman-Fried’s distressed crypto bets will pay off. Some companies have said no to a rescue package altogether.
After extending a line of credit to Voyager, FTX and Alameda looked to buy and and restructure the company. It outlined a plan to purchase Voyager’s digital assets and loans at market value. The company responded to the bid calling it a “low ball bid dressed up as a white knight rescue.”
“It surprised me. It didn’t surprise our legal team,” he said. “I had honestly just assumed they’d see our offer and just say … of course, we’ll take this.”
Bankman-Fried said there were further discussions and the answers were “disappointing.” The problem, he said, was that the proposal didn’t take any fees.
“If you’re in the business of taking fees, then maybe our proposal isn’t what you like,” he said. “I believe it was a lowball offer for consultants looking to make fees on this case. That’s not who I had had in mind. I had the customers in mind. But that is my current best understanding about what happened.”
The next … Warren Buffett?
Bankman-Fried’s latest moves in crypto have drawn comparisons with Warren Buffett’s technique in 2008. The legendary Berkshire Hathaway chairman and CEO stopped the bleeding throughout the monetary disaster with a $5 billion funding in Goldman Sachs. That finally introduced the Omaha, Nebraska-based conglomerate a $3 billion achieve.
“There are some parallels,” Bankman-Fried stated. “There are probably more differences. First of all, I don’t think Warren Buffett would call me the next Warren Buffett. To the extent there is a parallel recently, it’s been looking at which assets are in a place where they pretty badly need capital.”
Bankman-Fried stated he is discovering spots the place he can “simultaneously make good investments, and help backstop them and their customers and ecosystem.” Though generally just one is on provide, not each.
He additionally applauded Buffett’s ability in long-term, worth investing. The investor has confirmed that “you don’t need to have one brilliant innovation or insight, you can do it by just piecing together good decision after good decision over the course of decades and compounding that.”
Like Buffett, Bankman-Fried signed the Giving Pledge: a promise by the world’s wealthiest people to donate the majority of their wealth to charity. Bankman-Fried stated he has given away roughly $100 million this 12 months, with a deal with future pandemic prevention. Much like Buffett, he lives modestly. Bankman-Fried shares a home with 10 roommates and a Goldendoodle named Gopher. He drives a Toyota Corolla, and stated he has little interest in the excesses of a yacht or Lamborghini.
However the two humble traders sharply diverge with regards to their positions on cryptocurrencies.
Buffett and his enterprise companion Charlie Munger have been crucial of cryptocurrencies over the years. In 2018, for instance, Buffett known as bitcoin “probably rat poison squared.” Earlier this 12 months, Buffett stated he would not purchase all the bitcoin in the world for $25 as a result of it “doesn’t produce anything.”
Buffett has known as the underlying blockchain expertise “important” — however hasn’t wavered on the concept that “bitcoin has no unique value at all.” Blockchains are digital databases that retailer cryptocurrency transactions and, in some instances, different knowledge. Its fundamental use has been powering cryptocurrencies like bitcoin. However followers of the expertise say it may very well be utilized in well being care, provide chain logistics and different areas of finance.
“I certainly disagree with that,” Bankman-Fried stated. “I should hope [Buffett] disagrees with that, too. I don’t think you should be running a company if he thinks that, but I don’t think he actually thinks that. I think that was very likely hyperbole,” he stated. “He’s missed some of the power of blockchain — he’s also missed some of the impetus for it in the first place, and what’s driving people to want a new tool.”
Correction: Gisele Bundchen is a model ambassador for FTX. An earlier model misspelled her identify.
