From ETFs to FTX: Who Is Sam Bankman-Fried?

The former CEO of crypto exchange FTX and Alameda Research is on trial for fraud.

kent
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Research Lead
Reviewed by: etf.com Staff
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Edited by: Mark Nacinovich

The November 2022 collapse of crypto exchange FTX caused billions of dollars in losses to its customers, lenders and investors. Sam Bankman-Fried, the CEO of FTX and hedge fund Alameda Research, now faces the highest-profile scandal in the cryptocurrency industry to date. 

Who is Bankman-Fried, how did he rise and fall so dramatically, and what might his trial mean for the cryptocurrency industry and crypto-related ETFs? 

What Is FTX and Alameda Research? 

FTX is a cryptocurrency exchange founded in 2019 by Sam Bankman-Fried and Gary Wang. Alameda Research was a cryptocurrency trading firm founded in 2017, also by Bankman-Fried. The two companies were closely linked, and Bankman-Fried served as CEO of both firms until his resignation in November 2022 when the companies collapsed. 

Before its collapse, FTX was one of the largest cryptocurrency exchanges in the world, with a daily trading volume of billions of dollars. It offered a wide range of trading products, including cryptocurrencies, futures and options. Alameda Research was a quantitative trading firm that used advanced algorithms to trade cryptocurrencies. 

In November 2022, FTX filed for bankruptcy after experiencing a liquidity crisis. The collapse of FTX and Alameda Research has had a significant impact on the cryptocurrency industry. It has raised concerns about the regulation of cryptocurrency exchanges and the safety of customer funds. It has also led to a decline in investor confidence in the cryptocurrency market. 

How Did FTX and Alameda Research Go Bankrupt? 

FTX and Alameda Research both filed for bankruptcy for many reasons, including the following: 

  • Risky trading practices: Alameda Research engaged in risky trading practices, such as using leverage and margin trading. That made the firm vulnerable to market downturns. 
  • Poor risk management: Alameda Research did not have adequate risk-management controls in place. That caused the firm to lose large amounts of money. 
  • Collapse in cryptocurrency prices: The cryptocurrency market experienced a significant downturn in 2022. That caused the value of Alameda Research's assets to decline. 
  • Mishandling of customer funds: FTX was accused of mishandling customer funds. That led to a loss of confidence in the exchange and a withdrawal of funds by customers. 

In addition to these factors, Bankman-Fried's personal finances were intertwined with those of FTX and Alameda Research. That meant that when FTX and Alameda Research went bankrupt, Bankman-Fried's personal finances also suffered. 

Bankman-Fried Got His Start in ETF Trading 

After graduating from the Massachusetts Institute of Technology in 2014, Sam Bankman-Fried worked as a quantitative trader at Jane Street Capital, where he traded international ETFs. He left Jane Street in 2017 to start his own trading firm, Alameda Research. Bankman-Fried's experience in ETF trading helped him to develop the skills and knowledge that he would later use to build FTX. 

What Sam Bankman-Fried’s Trial Means for Crypto 

Sam Bankman-Fried's trial is a significant event for the cryptocurrency industry. It is the first major trial of a high-profile cryptocurrency figure, and it is likely to have a big impact on the way that the industry is regulated and perceived by the public. 

Regardless of the outcome of the trial, it is clear that Bankman-Fried's trial is a watershed moment for the cryptocurrency industry. It is the first time that the industry has been forced to confront its own shortcomings and to answer for the actions of its key players. 

Here are some specific ways that Sam Bankman-Fried's trial could affect the cryptocurrency industry: 

  • Increased regulation: If Bankman-Fried is found guilty, it could lead to closer scrutiny and increased regulation of the cryptocurrency industry. Regulators may be more likely to impose stricter rules on cryptocurrency exchanges and other businesses in the industry. 
  • Reduced investor confidence: The collapse of FTX and Alameda Research has already damaged investor confidence in the cryptocurrency industry. If Bankman-Fried is found guilty, it could further erode investor confidence and make it more difficult for cryptocurrency businesses to raise capital. 
  • Increased innovation: While the collapse of FTX and Alameda Research is a setback for the cryptocurrency industry, it could also lead to increased innovation. Entrepreneurs may be more motivated to develop new products and services that address the shortcomings of the current cryptocurrency ecosystem. 

Will the Bankman-Fried Trial Affect Crypto ETFs? 

Because many crypto ETFs are designed to track the performance of one or more cryptocurrencies or to provide exposure to related technologies, any impact on the crypto industry resulting from the Bankman-Fried trial will reverberate across related exchange-traded funds. The impact, however, may not be long term, because tighter regulation and increased innovation could later lead to improved investor confidence. 

For example, in the wake FTX’s collapse in November 2022, the largest cryptocurrency ETF, the ProShares Bitcoin Strategy ETF (BITO), fell about 25% in price. In the year after that, however, some of the best crypto ETFs rose as much as 100% and ethereum ETFs were launched. 

The Charges Against Sam Bankman-Fried 

Charges against Sam Bankman-Fried allege that he perpetrated a range of offenses in a global scheme to deceive and defraud customers and lenders of FTX and Alameda, the Bankman-Fried's crypto hedge fund. The allegations claim that the case is not one of mismanagement or poor oversight, but of intentional misappropriation of customer deposits, defrauding lenders, and committing securities fraud and money laundering.  

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.