Hold on Trillion Dollar Crypto Trade Makes It Vulnerable – InsideSources

Through the cascading cryptocurrency collapses and bankruptcies this summer, one name rose to the top: Sam Bankman-Fried, aka SBF.

The Bahamas-based American billionaire entrepreneur heads FTX, the world’s second largest cryptocurrency exchange. This year, he has become a protagonist in the folding of crypto platforms and hedge funds such as Celsius Network, Voyager and Three Arrows Capital, deploying a proverbial $1 billion parachute to acquire failing firms, support those facing insolvency and flirt with acquisitions worth hundreds. of millions.

He has also become a major player in US domestic politics, revealing that he is willing to spend up to $1 billion to fund Democratic Party efforts in 2024. That will prove influential if significant cryptocurrency regulation makes it through Congress, especially in the context of the “crypto winter” in 2022.

In 2022 alone, his companies acquired two crypto platforms, Canada-based Bitvo and the Japanese platform Liquid, bought a 30 percent stake in Anthony Scaramucci’s SkyBridge Capital, 7.6 percent of trading platform Robinhood, and loaned a whopping $400 million to BlockFi with an option to buy it outright by October 2023.

His relationship with Voyager Digital – an exchange that filed for bankruptcy in July – is complicated. His private equity fund, Alameda Research, is a creditor, investor and borrower. Bankruptcy documents show that Alameda originally owed Voyager $370 million, but the company loaned it more than $500 million in crypto in late June to cover client accounts. Later documents show that Alameda likely borrowed up to $1.6 billion from Voyager in the end.

During the same period, Alameda Research also loaned $12.8 million to Celsius Network, a crypto-lending platform that filed for bankruptcy in July.

Celsius’ largest single creditor, as disclosed in bankruptcies, was the Pharos USD Fund. This Cayman Islands-based investment company owed $81.1 million. The fund is managed and owned by Lantern Ventures, whose CEO, Tara Mac Aulay, is a co-founder of Alameda Research and a close associate and former colleague of Bankman-Fried at the Center for Effective Altruism.

While a full forensic account would be impossible to tabulate, we are left with a scenario where one person – thanks to his controlling stake in several companies and connections to investors, debtors and creditors – has a large stake in a significant part of the wider the cryptocurrency. trade industry.

The various loans, swaps and leveraged trading are typical for financial institutions. Nevertheless, they represent a whole new level of risk in the world of digital money based on open blockchains.

Because of his newfound relationship with lawmakers and political campaigns — especially as President Biden’s biggest donor — he will also have significant weight in shaping the future of Democratic Party politics.

There is no doubt that SBF is one of the most successful investors of our time. But does his significant position pose a risk to a new innovative sector of our economy?

For those of us with a significant interest in Bitcoin and other cryptocurrencies—protocols designed to be decentralized—seeing so much capital and control in one person is a warning sign.

With so much crypto tied up in exchanges and lending platforms instead of people’s private wallets, there are hundreds of billions of dollars at risk for consumers. As we saw with the collapse of TerraUSD, a stable algorithmic coin, it only takes one bankruptcy to send shock waves. Can a trillion-dollar industry continue to rely on the altruism and business acumen of a single investor?

Politicians in Washington will soon set the rules for how the government classifies cryptocurrencies. They will invoke financial risk, unsafe investment and consumer protection. Bankman-Fried will inevitably have an influence on what the outcome will be.

It will benefit us all if future rules help bring regulatory clarity, keep shady players at bay and provide financial transparency. The tricks of a single person, however successful they may be, cannot be the guiding light for the future of decentralized digital money.