Here’s why Sam Bankman-Fried is not the JP Morgan of crypto
An astonishing number of people believe Sam Bankman-Fried (SBF) has invested hundreds of millions of dollars bailing out crypto companies this year. Commentators repeatedly hailed him as a kind of JP Morgan, reincarnated to save 2022 crypto companies from a 1907-style financial panic.
Our analysis shows, however, that SBF has actually risked very little — sometimes, nothing at all. Less a chariot-mounted savior and more devil in the details, an analysis of SBF’s investments reveals that he usually assumes barely a single-digit percentage of the headline figures that initially circulate.
Often, he risks absolutely nothing.
In May 2022, crypto media outlets were starving for any good news they could get their hands on. Liquidity crises were causing once-multi-billion-dollar companies like Terra LUNA, BlockFi, Celsius, Three Arrows Capital (3AC), and Voyager Digital to shed up to 99% of their values in just a few weeks. All told, the crypto industry hemorraged over $1 trillion in market capitalization.
But from the ashes emerged a curly-haired billionaire issuing press release after press release. There was $400 million for BlockFi, $500 million for Voyager, a plan to repay hundreds of millions to Celsius customers, and tens of millions for Facebook’s failed stablecoin project. New deals were announced on a seemingly weekly basis with the latest, announced just days ago, trumpeting tens of millions to SkyBridge.
As a result, for months, writers plastered unqualified dollar figures across crypto news websites and blessed SBF was painted as the courageous bulwark, ready to hand out cash to the needy and save the beleaguered citadel from ruin.
But for the first time, Protos has fact-checked SBF’s alleged bailouts of 2022 and asked the simple question: How much risk has he actually assumed from completed investments?
The answer is a reality check for fanboys of the wünderkind whose trading firm Alameda profited $1 billion last year, whose exchange clears $719 billion in spot volume annually, and who Bloomberg estimates to be worth $11 billion personally.
BlockFi: How SBF tried to buy it for a 99.6% discount
In the midst of 2022’s crypto panic, BlockFi proudly announced a term sheet in which SBF’s FTX exchange seemed to offer a $250 million revolving line of credit plus equity and other restructurings. Some writers bumped the value of SBF’s total offer to a stratospheric $400 million.
However, the terms of the deal actually gave FTX an option to acquire BlockFi for as little as $15 million. That’s 96% lower than the $400 million headline figure, and a 99.6% discount on BlockFi’s prior $4.8 billion valuation.
BlockFi had still not fully repaid its $100 million SEC settlement, its well of GBTC arbitrage profits had run dry, and the crypto assets in its custody had just halved (or worse) within one month.
If BlockFi failed to satisfy a lengthy list of performance milestones, SBF’s $400 million package could quickly revert to an option to acquire the cash-starved company for the massively discounted sum.
BlockFi had little choice but to move forward. Its SEC payment schedule was signed in court and customer withdrawal requests were approaching a bank run-like frenzy. New money always makes the rules.
Just one example of SBF’s Cinderella stepmother-style impossible chores came when FTX asked BlockFi to gain SEC approval for its BlockFi Yield product by December.
The request is laughable. Multiple states’ securities regulators affirmed that BlockFi Yield involves unregistered securities offerings. The SEC sued BlockFi for offering unregistered securities with BlockFi Yield and won.
And so, with SBF aware that he’d never invest anywhere close to $400 million, journalists slowly started to unearth details surrounding the deal. BlockFi then backpedaled and weeks after proudly announcing his FTX partnership, the company’s CEO Zac Prince clarified that FTX cannot exercise its option to buy it before October 2023. This might give BlockFi time to either hit goals that will trigger a higher purchase price or earn the cash needed to buy its way out of the disastrous -99.6% valuation haircut.
In conclusion, SBF has invested $0 in BlockFi in 2022 and has lent some money as part of the credit facility — which is debt, not equity, investment and must be repaid by BlockFi. He might be able to buy the once-$4.8 billion-valued company for a 99% discount next year. In any case, whether he ends up paying $0, $15 million, or a bit more, he certainly won’t be risking anywhere close to $400 million in this deal.
Voyager: How to spend 100% less than half a billion dollars
At the height of this year’s panic in the crypto lending industry, FTX issued a press release with a liquidity plan for Voyager Digital. Hope sprung eternal for terrified customers awaiting bankruptcy updates while the media ran with the most generous interpretation possible: $500 million.
Meanwhile, Bankman-Fried quietly admitted to spending $0, backing out of the deal entirely. Voyager clapped back, claiming that FTX intentionally made a low-ball offer.
Indeed, a list of creditors reveals that Voyager owed SBF’s Alameda Research $75 million in unsecured debt. Certain terms of SBF’s deal would have preferentially structured FTX’s claims on Voyager’s future debt repayments. In other words, early portions of SBF’s alleged “bailout” involved capitalizing Voyager, which already owed him money, to at least stay solvent long enough to repay its creditors.
To bolster his bargaining power, SBF bought nearly 15 million shares in Voyager Digital shortly before its bankruptcy filing.
In conclusion, SBF has invested $0 since Voyager went bankrupt and spending $0 is a much cheaper way to gain media attention for offering $500 million than actually spending half a billion dollars.
Update: Shortly before publication, Coindesk reported that although SBF has not yet invested in Voyager, he is still in late-stage discussions to acquire assets from the company.
Celsius: SBF dangles money in front of bankruptcy victims and does nothing to help
Are you a Celsius customer with funds locked in bankruptcy proceedings? Wouldn’t you love for a billionaire to swoop in, write a check, and clear everything up so you can finally withdraw your funds and end your sleepless nights?
That is exactly what SBF proposed in June 2022.
Of course, the media attention once again casting SBF as the white knight of battered Celsius customers is where his investment started and ended. Yes, FTX soon backed out of the deal entirely.
In conclusion, SBF has invested $0 to help bankrupt Celsius’ customers withdraw their money in 2022.
By now, the headline figures in these “bailouts” stack up to over $1 billion, yet SBF’s actual bailouts total $0.
Huobi: How to enjoy media attention for not spending $1 billion
A few weeks ago, Huobi Group founder Leon Lin announced plans to sell his stake in the massive crypto exchange. He claimed to be negotiating with a select group of investors, seeking to sell over $1 billion worth of equity in his Asian exchange at a $3 billion valuation.
Few individuals have the capital to entertain such a large equity offering, but of course, Bloomberg floated SBF’s FTX as one of the companies with which Li had preliminary discussions.
Befitting the pattern above, SBF soon denied plans to acquire Li’s stake. In conclusion: $0 again.
SkyBridge: How to give money to a fund that buys crypto and say you bought “equity”
FTX bought a 30% stake in Anthony Scaramucci’s SkyBridge Capital. Unsurprisingly, SkyBridge immediately announced plans to buy $40 million worth of crypto assets and invest in crypto miners.
Read more: Sam Bankman-Fried’s Alameda owed Voyager much more than we thought
Scaramucci admitted that Skybridge’s portfolio performed poorly during 2022’s crypto bear market. Alarmingly, he even resorted to prohibiting withdrawal requests from one of its funds. Skybridge cited poor market performance and investors cashing out as reasons that he took SBF’s deal.
Of course, FTX invests directly in digital assets like bitcoin, ether, Solana, Algorand, and others. It’s also given money to other fund managers like Pantera Capital and Polychain. Readers will be shocked to learn that FTX invests in fund managers who buy tokens in which FTX already has a beneficial interest.
FTX lead investor for a $150 million Aptos funding round
To SBF’s credit, he did invest in some crypto companies this year — albeit at large discounts to prior valuations. For example, FTX and Jump Crypto became lead investors for Aptos Labs (formerly Facebook’s Libra, aka Diem) in a $150 million funding round. Other investors included a16z and Multicoin.
Aptos Labs acquired assets formerly belonging to Meta’s abandoned Diem project at a fraction of its peak valuation. Libra/Diem was once a multi-billion dollar project incubated inside one of the world’s largest companies, aiming to be a global stablecoin with greater liquidity than even Tether.
Going forward, the re-branded Aptos intends to build the infrastructure for various crypto projects.
SBF’s partnership with GameStop
GameStop announced a partnership with FTX to offer gift cards in its stores. It’s not revealed the financial terms of the deal.
Some things that are known about GameStop:
- GameStop’s most recent quarterly report indicated declining sales, worsening financial losses, and ballooning inventory. Its earnings have been sliding for years.
- GameStop’s stock was one of a few assets that were famously pumped by the Reddit subforum WallStreetBets in January 2021. The pumps were part of a concerted effort to frustrate hedge fund managers that short-sell struggling companies.
- SkyBridge Capital reportedly lost money in that GameStop short squeeze through its exposure to Melvin Capital, which lost $3 billion due to the parabolic rally. Despite the loss, Scaramucci called the GameStop phenomenon proof that a “decentralized crowd” wields power.
GameStop might not seem like an obvious target for a bailout from SBF. Its share price is still trading at an astronomical price-to-sales multiple. However, GameStop earns minor fees for selling gift cards, and so sure, FTX will enjoy inexpensive exposure to gamers who browse its gift card racks.
Not the JP Morgan of crypto after all
Commenting on FTX’s 30% stake in Skybridge Capital, Modulus Capital CEO Richard Gardner said, “I don’t think that Sam Bankman-Fried’s recent movement is an altruistic gesture.”
In some cases, like FTX US’s acquisition of a clearing firm called Embed Financial Technologies, the motive for SBF’s investment is clear: FTX wanted to obtain the clearing firm’s right to process stock trades. Fair and clear.
FTX’s reasoning might be less clear with acquisitions of troubled companies like Liquid Group, which operated the Quoine exchange. Quoine faced significant challenges, including at least one lawsuit over a reversed trade and a hack of $90 million worth of digital assets.
The public reasoned that FTX meant to migrate Quoine and its users into the FTX exchange. However, FTX previously made a $120 million loan to Quoine to help it recover from the hack. Acquiring Liquid Group and Quoine so quickly afterward could make the deal look like another Sam Bankman-Fried bailout.
Read more: SBF loves the CFTC so much he’s hired its former commissioner
Many of SBF’s supposed “bailouts” include provisions that don’t put as much of his money at risk as previously thought.
Conclusion
Sam Bankman-Fried claims that FTX has an additional $2 billion for more bailouts if necessary and says he cares more about the health of the digital asset ecosystem than losing money on a few bad investments. Business Insider said he was positioning himself as a “lender of last resort” willing to take on companies that other lenders will not touch.
SBF and press relations at FTX are masters of spin. Somehow, despite minimal cash outlay and structuring deals to buy equity at 99% discounts, they’ve been able to portray SBF as being on par with a banker who bailed out the US government.
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