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Exchanges

Sam Bankman-Fried’s Alameda Research & FTX Insolvent - Here's Why

Hayden Otto
6 min read
Sam Bankman-Fried’s Alameda Research & FTX Insolvent - Here's Why
In: Exchanges, Videos
It’s looking increasingly likely that Sam Bankman-Fried’s trading firm, Alameda Research, is in massive financial trouble which would also bring down his exchange FTX, one of the largest cryptocurrency trading platforms in the world. This event could have extremely negative implications on the wider cryptocurrency market, smashing Bitcoin down toward 10k and completely decimating altcoins. In today’s video I’ll be covering the revelations that revealed Bankman-Fried’s financial woes and questioning whether it could be retribution for his lobbying for greater DeFi regulation. Make sure you like this video and subscribe to the channel so that you stay updated on this developing story. It all started on November 3rd, when Coindesk reported on a document they obtained which detailed Alameda’s balance sheet. From this leak, a user by the name of ‘Dirty Bubble Media’ has pieced together that Alameda relies on the same scheme that destroyed Celsius earlier this year. Alameda holds $14.6 billion in assets against $8 billion in liabilities. What’s concerning is that the balance sheet showed Alameda’s largest asset to be FTT tokens, printed out of thin air by Bankman-Fried’s own FTX exchange, and in fact it accounts for 1/3 of their total assets and 88% of their net equity. As was the case with Celsius, the firm’s solvency relies on crypto tokens issued by related parties, and this is what Dirty Bubble calls the “flywheel scheme”. You create a token, pump the price of the token, put your artificial gains on the balance sheet, show these gains to investors, raise cash through equity sales or loans and then rinse and repeat. Through this manipulation, you can essentially hack the financial system, but as seen with Celsius it is unsustainable. When Celsius pumped their token higher it continually became harder to sustain and eventually, they ran out of money to keep buying, which caused the whole scheme to collapse. Interestingly Sam Bankman-Fried was deeply involved in the Celsius scheme, but that is a whole other video. Now let’s run through some concerning figures. The $5.8 billion in FTT tokens held my Alameda, at the time of filming, is equal to 194% of the token’s total circulating supply. The problem with this is that there are only 180-200 addresses actively transacting FTT, which shows that there is almost no organic demand. In comparison to tokens of comparable market cap, like LINK, it has a fraction of the volume and active addresses. The FTT token is completely illiquid and has non-existent organic demand. There is no way that Alameda can sell even small amounts of their FTT holdings without tanking the price to 0; its value is all on paper. The same goes for other Sam Bankman-Fried associated projects on Alameda’s balance sheet, which allegedly account for several hundreds of millions of dollars of its assets. Taking all this into account, Alameda is left with $6.6 billion in net equity according to Dirty Bubble Media, and it is exceeded by the value they ascribe to their illiquid token holdings. That doesn’t even factor in the likely overvalued investments in Solana and other crypto assets on their balance sheet. Which then begs the question, who does Alameda owe $7.4 billion, and how are they going to pay them back? Given the recent controversy with Sam Bankman-Fried, where he has been actively lobbying for greater regulation of DeFi for the benefit of his exchange FTX, I don’t think the news about Alameda coming to light is pure coincidence. Who gave the details of Alameda’s balance sheet to CoinDesk? Well, I think we might know. Yesterday, somebody moved over $580 million dollars’ worth of FTT token to Binance. A few hours later CZ, the CEO of Binance, confirmed that this transaction was by his company. He went on to say that “As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books. We will try to do so in a way that minimizes market impact. Due to market conditions and limited liquidity, we expect this will take a few months to complete. Binance always encourages collaboration between industry players. Regarding any speculation as to whether this is a move against a competitor, it is not. Our industry is in it’s nascency and every time a project publicly fails it hurts every user and every platform. We typically hold tokens for the long term. And we have held on to this token for this long. We stay transparent with our actions.” After this, Caroline, the CEO of Alameda Research, tweeted in response to CZ, “if you’re looking to minimize the market impact on your FTT sales, Alameda will happily buy it all from you today at $22”. She went on to make an additional statement regarding the balance sheet where she said that more than $10 billion worth of assets are not reflected in it and that they have already repaid most of their loans at this time. Of note is her offer to buy FTT at the current market rate of $22, which seems a bit odd. Why wouldn’t you offer to buy at a price lower than market rate for such a large sum?  Plus if Binance pushed the price down, Alameda should be happy that they would be able to pick it up even cheaper. Well, this is where things get spicy. Looking at the FTT/USD chart, from a technical analysis perspective we can see that $22 is a big support level. Further, we can see a large head and shoulders formation that activates when the price drops below $22. Alameda NEED to defend this level if they want to prevent a huge sell off in the asset. Now, let’s rewind a bit. As we saw in the report by CoinDesk, Alameda has $7.4 billion in loans of which $2.2 billion is collateralized with FTT tokens. If a huge FTT selloff occurs, Alameda will get margin called on these loans. Despite what CZ is saying in public about his intentions, that it’s about risk management, I think he knows what he is doing. He is forcing Alameda to buy up their own worthless tokens in defence of this $22 level, and when they run out of money, it’s not going to end well Sam Bankman-Fried. Binance and FTX are the two biggest crypto exchanges in the world, they are competing for the same customers and therefore CZ does have an interest in helping sink the FTX ship. He also has plausible deniability because in his Tweets the logic in his decision making is sound, even if there are ulterior motives. This all could very well be a coordinated effort between CZ and other big players in the space, to exact retribution on Bankman-Fried after he began pushing for crippling DeFi regulations. The timing is too close to be coincidence. Already since news of all this began to spread, it appears a run on the bank has begun over at FTX exchange, with Ethereum hourly withdrawals rising to an all-time high. FTT tokens in exchanges have also spiked to their highest point ever, as people rush to sell. Alameda Research has sent over $300M of stable coins and $42M of Ethereum, to FTX, to meet the high demand for withdrawals. The official FTX account on Twitter has put out an update saying: matching engine, running smoothly. BTC withdrawals: churning through them; node through put limited. We’re switching it to process from both ends which should help speed it up. Stable coins: processing. Banks are closed for the weekend, though USD to stable coin creations/redemptions might be slower until wires clear tomorrow. Sam Bankman-Fried himself has commented on the situation in a tweet thread “A huge thank you to everyone who has supported us. We’re excited to keep climbing together. And especially to those who stay level headed during crazy times. We deeply appreciate it. A bunch of unfounded rumors have been circulating. FTX keeps audited financials and, though it slows us down sometimes on product, we’re highly regulated. We’ve already processed billions of dollars of deposits/withdrawals today; we’ll keep going. Also tons of USD and stablecoin conversions going on. In the end you should do what you want, and trade where you want. We’re grateful to those who stay; and when this blows over we’ll welcome everyone else back. As always, a huge thank you to our supporters. And to everyone else, as well, as long as they keep building and keep moving the industry forward. We’ll keep building too.” All I have to say, and its coming from experience, not your keys not your coins. Thanks for watching this video guys and stay safe out there. Don’t forget to subscribe to the channel and I’ll see you all next time.
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