This analysis was first published in SvD Näringsliv, in Swedish, on November 14th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
Billions disappeared when crypto company FTX collapsed. The question being asked now is how investors could have placed so much money in a company run with so little professional rigour.
Ten people living together in a luxury penthouse on the Bahamas, worth around 415 million kronor. Most of them in a romantic relationship with each other — something its founder openly discussed on social media.
What sounds like the premise for another bad reality TV show was in fact the operating base of FTX, one of the world’s largest crypto exchanges, which has now filed for bankruptcy. The final accounting is still not complete, but debts from the collapse appear to run between 10 and 50 billion dollars.
Many are now asking how this could have happened. Among them, presumably, are a large group of Canadian teachers whose pension fund invested heavily in FTX.
How did it happen?
Looking more closely at Sam Bankman-Fried — known widely as SBF — you don’t find obvious answers. A 30-year-old with dishevelled hair, who wore rumpled shorts to meet world leaders, and who cultivated an image somewhere between eccentric genius and accidental billionaire.
In 2019 he founded FTX and Alameda Research and moved to Hong Kong. Two years later he relocated to the Bahamas. Timing, as they say, is everything.
Bankman-Fried became known as one of the strongest supporters of the cryptocurrency Solana, which was also popular with other investors who believed crypto could be the foundation of “a new kind of internet.”
Clearly, that did not come to pass in the way they imagined.
But the perceived excitement around that vision led several investors to set aside ordinary principles around risk management. Investors poured over 2.2 billion dollars into FTX. For a time, the investment looked like genius. Bankman-Fried appeared on conference stages alongside Tony Blair, and his family sponsored investigative journalism.
Then it all collapsed, very fast.
In the space of a few dramatic days, FTX went from global star to the crypto world’s most notorious cautionary tale. The details of how unprofessionally the company was actually run continue to emerge, and they are alarming.
That the crypto market is volatile is no surprise. That fraud and incompetence exist in any industry is also not surprising. What is striking in the FTX case is that the chase for the next big thing seems to have led investors to make enormous concessions on the most basic principles of due diligence.
