How Sam's bank fried

By Adrian Tomaszewksi Nov. 9, 2023

Saachi Basavaraju Art

On the morning of Nov. 1, 2022, all was going swell for multi-billionaire Sam Bankman-Fried (SBF) and his cryptocurrency-trading firm FTX, the second-largest crypto exchange in the world. Cryptocurrencies, often shortened to crypto, are a type of digital currency that use cryptography for secure transactions. A day later, a financial report by cryptocurrency info site CoinDesk would cause FTX to declare Chapter 11 Bankruptcy. In the remaining ashes of FTX lay the question of how a company so successful could collapse, resulting in millions of financial victims. SBF’s trial, which began on Oct. 3, sought to answer this question.

Saachi Basavaraju Art

FTX was started in mid-2019 by SBF and Gary Wang as a side project to SBF’s other crypto-trading firm, Alameda Research. FTX was a platform that facilitated the exchange of certain cryptocurrencies and its own token called FTT. Users could also trade cryptocurrencies—which currently have few real-world use cases—for fiat (government-issued) money. Due to its reliability, low exchange fees and widespread advertisements, FTX rose to prominence during the crypto boom of 2020 and 2021.

“Banks and various funds still almost exclusively trade in fiat money, which has several benefits over crypto such as stability, convenience and legal recognition. It is more likely that fiat money and cryptocurrency will coexist, as crypto has the benefit of decentralization and can be used for black market dealings,” Senior Abhinav Arunkumar said.

However, not all was going well for the company. As would be brought up in trial, FTX siphoned money to Alameda Research without consumer consent. FTX loaned more than it owned in hopes that users would never withdraw their money all at once. What this ultimately meant was that FTX would collapse should panic ever arise surrounding the company’s or FTT’s stability.

Saachi Basavaraju Art

Coincidentally, panic occurred on Nov. 2, 2022 when CoinDesk published a report that exposed FTX’s backroom deals with Alameda Research, triggering doubt about FTX’s stability. This fear was further compounded when Binance—the world’s largest cryptocurrency exchange—announced that it would sell a year’s worth of its FTT tokens due to doubt over FTX’s handling of funds. This announcement would be the last straw, causing the price of FTT to plummet as investors and ordinary people rapidly withdrew their money. Soon after, FTX was forced to declare bankruptcy, evaporating almost $2 billion in users’ accounts in a matter of seconds.

SBF was arrested in the Bahamas three days later, where he pleaded not guilty to seven different criminal charges and was sent to the U.S. for trial. Despite his claims of innocence, SBF was found guilty on all counts of fraud on Nov. 2, as per the Wall Street Journal. His sentencing is planned to commence next March.

“While SBF had good intentions, he should have only invested and donated the money through legitimate means. Although he may not have deliberately committed fraud, he failed to honor the trust of the company’s users,” Junior Spencer Yip said.

The collapse of FTX coincided with the end of the cryptocurrency boom in late-2022. However, due to the accomplishments of cryptocurrency businesses like Ethereum and Bitcoin, crypto has become one of the most stable modes of currency even amidst rampant inflation and a general lack of economic growth in the Western world, as stated by Trading Economics. While FTX’s collapse demonstrates inexperience in some sectors of crypto, the overall success of the crypto industry suggests that it will keep going strong into the far future.

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About the contributors

Adrian Tomaszewski

staff writer

Adrian Tomaszewski is a junior at Leland High School and is a staff writer for the Charger Account. During his free time, he enjoys swimming, cooking, listening to music, ranting about politics to unsuspecting victims, and playing video games.

Saachi Basavaraju

artist

Saachi Basavaraju is a freshman at Leland High School and works as an artist for The Charger Account. In her free time, she enjoys crocheting, reading, listening to crime and horror podcasts, and rewatching clips from her favorite movies and shows.