Until a few days ago, Sam Bankman-Fried was the king of crypto.
A 30-year-old MIT graduate with a net worth of $16 billion, according to Forbes, Bankman-Fried ran a top crypto exchange called FTX, counted NFL legend Tom Brady and NBA superstar Stephen Curry as company ambassadors, emblazoned FTX’s name on the Miami Heat arena and donated millions of dollars to lawmakers, mostly Democrats. He regularly wowed much of the financial press. “The Next Warren Buffett?” Fortune Magazine asked on a recent cover.
Now, his Bahamas-based empire is scorched, investors are shellshocked and the entire crypto ecosystem is on edge. FTX and an array of related entities filed for bankruptcy protection on Friday morning, Bankman-Fried resigned and a new CEO has been installed to oversee a process to “maximize recoveries for stakeholders.”
The meltdown began last weekend and accelerated Tuesday when FTX International halted customers’ redemptions. A major investor threatened to sell because the company’s financial soundness had come under scrutiny and the ensuing market mayhem took the price of bitcoin to a fresh low this week.
“I’m sorry I didn’t do better,” Bankman-Fried said Tuesday in a message to investors reviewed by NBC News.
Sam Bankman-Fried's crypto exchange FTX collapsed in a matter of days and has started Chapter 11 bankruptcy proceedings.
The FTX fiasco is the latest in a series of meltdowns to rock the crypto world this year.
The maelstrom may spur efforts for much-lacking regulation and should, at the very least, serve as a warning for investors, experts told Insider.
The crypto winter is getting worse, and FTX is its latest victim.
Less than a year after it boasted a $32 billion valuation, the crypto exchange, owned by Sam Bankman-Fried, faced a "liquidity crunch" that forced it to try to sell itself to rival Binance. After Binance walked away from the deal, citing issues "beyond our ability or control to help," FTX scrambled to find an infusion of cash elsewhere, but failed.
Consequently, FTX said Friday it had begun Chapter 11 bankruptcy proceedings. Bankman-Fried has also stepped down as CEO.
The fallout is wide-ranging. Contagion fears sprung up last week, fueled by reports of heavy exposure to FTX's native token on the balance sheet for trading firm Alameda Research, also owned by Bankman-Fried. The value of the overall crypto sector dropped 12% over a day to $911 billion, according to CoinMarketCap. JPMorgan strategists say the FTX debacle could transform the industry.
Auto Rotation On
Full screen
1 of 12 Photos in Gallery©FTX Official/YouTube
FTX made massive sponsorship deals with sports leagues and star athletes like Tom Brady. Here's what experts say could happen after the crypto exchange's implosion.
Sam Bankman-Fried's FTX poured millions of dollars into naming rights, partnerships, and sponsorships in the sports world.
With FTX's survival in question, massive deals with the likes of Tom Brady, the Miami Heat, and MLB are in jeopardy.
Experts say Miami's FTX Arena may see a name change soon, but some celebrities may have trouble getting paid.
Sam Bankman-Fried's crypto-exchange platform FTX is facing an uncertain future. Rival platform Binance had initially agreed to bail out FTX as the company faces a severe liquidity crisis after getting hit with $6 billion in withdrawals in just 72 hours, but Binance announced Wednesday that the deal fell through. FTX was once worth $32 billion, as cryptocurrency prices surged in 2020 and 2021. During that time, Bankman-Fried poured millions of dollars into many high-profile sponsorships in the world of sports, including partnerships in baseball, basketball, football – and even Formula One. Now that it is looking increasingly likely that the company may not survive its current predicament, questions loom about the future of these deals. Here are some of FTX's most high-profile sports deals and what experts say may become of them:
Here's what crypto's latest blowup could mean:
Regulators might crack down, or at least try
Crypto has famously had little oversight, partly by nature.
"The separation of crypto from the regulator was a design choice," said David Yermack, the Albert Fingerhut Professor of Finance and Business Transformation and chair of the finance department at NYU's Stern School of Business. "But that has its costs and benefits. One of the costs is that you're vulnerable to these kinds of events."
There's rampant speculation in the market, but regulators haven't caught up.
"Regulators are still trying to figure out what they're going to do and how they're going to act," said Bankrate.com analyst James Royal, who writes about wealth and investing. "It's been a long time coming, and it's a real wild west out there for anybody who is trading crypto."
Regulating crypto may require proactive involvement from exchanges themselves.
"There's no central node and there's no leadership, no board of directors, nobody that the government can reach out to to provide the data and to take orders that might come from a court and actually freeze somebody's accounts or put liens on their assets," Yermack said. "It's something the government may wish to regulate, but it's not going to happen without the cooperation of some of the players in the industry."
Big banks could be less likely to let people trade crypto
Financial institutions like Goldman Sachs, JPMorgan, and Morgan Stanley tried to capitalize on the crypto boom last year with services like trading crypto futures or derivatives.
But the crypto winter may put pressure on banks to reconsider offering these services and try to distance themselves instead, Royal says.
Crypto exchanges should watch for contagion risk
Other exchanges and companies should be on high alert for continued fallout.
"There could very well be a contagion where people start to withdraw assets on other platforms because they saw what happened here and they wonder where else could this occur next," Yermack said. "There may be exchanges that have not done anything to call into question their stability, who are just bystanders, but nevertheless get sucked into it."
Investors should be wary
People already invested should take steps to protect their assets.
"There's a lot of confusion, lack of clarity, lack of transparency in how these exchanges are holding funds," Royal said. "If you're holding [crypto] on an exchange, you need to understand how it's held and what recourse you have if your exchange goes bankrupt."
The firestorm should also be a cautionary tale of the perils of investing in crypto in the first place, he added.
"As an investor, you should be seriously questioning what you're investing in if it can evaporate over a weekend," Royal said. "The prices are entirely based on sentiment and belief in the future of crypto...If that belief goes away, you've got nothing."