The crypto empire controlled by disgraced FTX founder Sam Bankman-Fried was fragile for years, with cracks already showing in 2022, a new report good suggested.
Bankman-Fried’s crypto trading firm Alameda Research “wasn’t particularly good at investing,” according to a report published by the Wall Street Journal on New Year’s Eve.
The report said Alameda “gambled big, won some and lost a lot,” and lacked a proper risk management about the trading firm, which was known for its close ties to – and unrestricted access to – FTX .
The report contradicts earlier statements by Sam Bankman-Fried, who enriched Alameda until the crypto crash began in November of 2021. By that time, Bankman-Fried was already out as CEO of Almeida, and the firm was led jointly by Caroline Ellison. and Sam Trabucco until August 2022, and then by Ellison alone.
Caroline Ellison has apologized for her role in the downfall of Alameda and FTX. she agreed plead guilty to seven offensesIncluding charges of wire fraud, securities fraud and money laundering.
“Complete lack of risk-management framework”
As the Wall Street Journal reports, the lack of formal processes and structure at Alameda was so apparent that Austin Campbell, a digital asset trader at Citibank, became suspicious of the firm when the bank and Alameda were exploring a partnership in 2020.
Speaking with the WSJ, Campbell was quoted as saying:
“The thing I picked up on right away that was bugging us was the complete lack of a risk-management framework that they could articulate in any meaningful way.”
Japanese arbitration
As has been widely reported, Sam Bankman-Fried and Almeida originally made their fortune in 2017 and 2018 by taking advantage of an arbitrage opportunity between crypto prices in Japan and the rest of the world. When the price gap closed, though, Alameda found other ways to make money.
As reported by the WSJ, Almeida’s trading algorithm was already losing money at the time, often making wrong bets on price moves.
The report states that by the spring of 2018, Almeida’s wealth had shrunk by two-thirds, to around $30 million. It states that “a great loss XRPEquity was the primary reason for the decline. With Bankman-Fried at one point offering lenders returns of up to 20% per annum, operations have always required large investments from outside parties.
the bear market begins
Nevertheless, Almeida continued to operate and make profits for years, until problems began to crop up again at the end of the 2021 crypto bull market.
In late 2021, Almeida began pumping as much as $1bn into crypto miner Genesis Digital Assets, which had operations in Kazakhstan. The investment was described as Almeida’s largest venture investment “so far,” but unfortunately it happened just before the crypto market collapse in 2022.
“The timing was terrible: The price of bitcoin soon plummeted, and with it miners’ profits,” the WSJ reported.
After the price crash, defaults began to spread throughout the industry, with Bankman-Fried coming to the rescue several times to shore up failing firms.
Problems worsened when Alameda’s creditors began asking for their money back. And since many of the firm’s investments were illiquid and not profitable, Bankman-Fried saw only one way out; They prompted the trading firm to borrow billions of dollars from FTX – the fund that the exchange organizes on behalf of its clients.
Despite their aggressive moves to keep the business afloat, it appears that Bankman-Fried eventually realized that Almeida’s business practices were not sustainable.
“I think it might be time to close Alameda Research. To be honest, maybe a year ago the time would have come,” he admitted in a document a few months before the bankruptcy filing, according to the WSJ. .
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