Finance

A Crypto Emperor’s Vision: No Pants, His Rules

NASSAU, The Bahamas — The crypto executive Sam Bankman-Fried, who rose to fame by building a $40 billion business in less than three years, stood in the wings at the Baha Mar convention center, wearing his usual schlubby ensemble of shorts and a T-shirt. He was about to take the stage with Anthony Scaramucci, a former White House communications director who rose to fame by losing that job in less than two weeks.

They were talking about other famous people. A couple of days earlier, Mr. Bankman-Fried had been shooting Twitter videos with Tom Brady, the N.F.L. quarterback. “Brady was awesome,” Mr. Bankman-Fried said. “Maybe we’ll buy a football team together some day.” The Mooch put a fatherly hand on Mr. Bankman-Fried’s shoulder. “You couldn’t get a better guy,” he agreed.

Next the conversation turned to Orlando Bloom and Katy Perry, who’d joined Mr. Bankman-Fried for dinner earlier that week. “Orlando is really sweet,” Mr. Bankman-Fried said, as a production assistant fiddled with his microphone. They had met for the first time at a party in Los Angeles over Super Bowl weekend. “He just started talking to me.” It turned into one of those awkward situations, he said, where you know you’re supposed to recognize someone but can’t figure out who they are.

Mr. Bankman-Fried, 30, isn’t hard to pick out of a crowd: Known to the blockchain faithful as SBF, he is perpetually rumpled, with a mess of curly black hair exploding from his head. He founded the crypto exchange FTX in 2019, and has risen to become one of the richest crypto executives in the world. At Baha Mar, Mr. Scaramucci had dispensed with his suit jacket and donned a T-shirt and shorts to match hiscompanion. When the lights dimmed, he and Mr. Bankman-Fried walked onstage to perform what passes for a comedy sketch at an international crypto conference: A bit of semi-scripted banter centered on their matching attire. “The Hanes special,” Mr. Bankman-Fried said.

The audience roared. It was late April, and Mr. Bankman-Fried was presiding over the first edition of the Crypto Bahamas conference, a showcase for FTX and a vivid demonstration of his growing celebrity and influence. Everywhere he went, crypto entrepreneurs offered handshakes and fist bumps, patting him on the back as they pitched projects or presented him with branded swag. One afternoon, Mr. Bankman-Fried led a panel with Tony Blair and Bill Clinton, discussing blockchain technology and the war in Ukraine. “I’m glad you all came out here to see me today,” he said, to laughter from the packed house.

The laughter has faded. Over the last few days, the collapse of a so-called stablecoin called TerraUSD has sent the crypto market into meltdown, accelerating a dramatic sell-off that tanked the price of Bitcoin and Ether, the two most valuable cryptocurrencies. At Baha Mar, Mr. Bankman-Fried was throwing a giant party for the industry; this past week, he was attempting to restore calm, tweeting long threads about the state of the market.

It’s a dual role that SBF has been happy to embrace. For years, the crypto industry was dominated by political ideologues, shameless grifters and rich guys with yachts. Mr. Bankman-Fried is hoping to put a new face on the still-chaotic world of digital assets. He lives modestly for a billionaire and has pledged to give away virtually his entire fortune, which currently stands at $21.2 billion, according to Forbes. A growing force in political fund-raising, he has a super PAC that recently gave more than $10 million to a Democratic congressional candidate who supports some of his philanthropic priorities.

In public, Mr. Bankman-Fried can sometimes seem uncomfortable, tapping his foot or twirling a fidget spinner. But the awkwardness is part of a calculated self-presentation. Over countless tweets, interviews and TV appearances, he’s positioned himself as a mad-scientist-cum-diplomat — a straight-talking brainiac willing to embrace regulation of his nascent industry and criticize its worst excesses.

Mr. Bankman-Fried with Anthony Scaramucci at the conference last month.Credit…Erika P. Rodriguez for The New York Times

Now Mr. Bankman-Fried is trying to leverage his fame to set policy in Washington, at a moment when the risks of crypto trading are growing increasingly stark; he makes regular trips to the Capitol from his base in the Bahamas, meeting with regulators and testifying in Congress. If he’s successful, he could become one of the most influential figures in the new era of technological experimentation that supporters call web3, writing the rule book for a slew of risky investment products that are increasingly reshaping the internet, finance and even the arts.

But his detractors say his advocacy is driven by self-interest. His political contributions have prompted complaints that he’s distorting the competitive landscape to advance his own agenda. And the charm offensive in Washington has alarmed consumer advocates who argue that FTX is exacerbating the volatility in crypto markets and putting investors at risk.

Read More on the World of Cryptocurrencies

  • Demystifying the Inescapable: Crypto is a lot of things – including completely confusing. This guide can help clear things up.
  • A Perfect Storm: A steep sell-off that gained momentum this week is illustrating the risks of cryptocurrencies.
  •  Crypto Nomads: A new generation of industry leaders has set up offshore trading exchanges for cryptocurrencies, largely beyond the reach of U.S. regulators.
  • Crypto Critic: The actor Ben McKenzie, best known for “The O.C.,” has become an outspoken skeptic of digital currencies. Who’s listening?

FTX serves as a portal to the crypto world. With the click of a button, a curious investor can turn dollars into Bitcoin, Dogecoin or Ether. It’s as simple as buying paper towels from Target — except that the value of a digital asset can be wiped away overnight amid the types of market gyrations that have sent cryptocurrency prices crashing over the past month. In the United States, crypto exchanges occupy a regulatory gray area: It remains unsettled whether the tokens are securities, commodities or something else entirely. Mr. Bankman-Fried has been pitching a regulatory structure with expanded authority for the Commodity Futures Trading Commission, which is smaller and less aggressive than the Securities and Exchange Commission and has traditionally been more sympathetic to the crypto industry.

FTX is headquartered in the Bahamas partly because 80 percent of its $1.1 billion in global revenue stems from a trading instrument that remains illegal in the United States. On the FTX platform, investors can borrow money to make enormous bets on the future prices of cryptocurrencies, leading to potentially astronomical gains — or catastrophic losses. These kinds of risky trades are hugely popular worldwide. Mr. Bankman-Fried is now urging the trading commission to permit such leveraged bets in the United States, which would set a useful precedent for other crypto firms offering experimental products.

Even as the market crashed this week, Mr. Bankman-Fried was busy making that case. On Thursday, he was in Washington for a hearing in front of the House Agriculture Committee, where he defended FTX’s trading proposal and held forth on the importance of federal crypto regulation.

“It would serve a lot of interests at once,” he said. “That’s what we would love to be a part of doing.”

Raised as a utilitarian

Before making any kind of business decision, Mr. Bankman-Fried weighs the options in quantitative terms. “What’s the expected value?” he often asks co-workers, before assigning numbers to each possible outcome: A good result has positive EV; a bad one, negative EV. Once, while a few colleagues were cracking crypto-themed sex jokes in the office, he whirled around in his chair. Was there positive EV, he wondered, in distributing condoms with jokes on them at an upcoming conference? (The answer was yes: “Never breaks,” one of the FTX-branded wrappers read, “even during large liquidations.”)

The origins of that pragmatic style can be traced back to his childhood in the Bay Area. Both Mr. Bankman-Fried’s parents are Stanford Law School professors who have studied utilitarianism, an ethical framework that calls for decisions calculated to secure the greatest happiness for the greatest number of people. “It’s the kind of thing we’d discuss in the house,” said Mr. Bankman-Fried’s father, Joseph Bankman.

As might be expected for a young man raised on dinner-table discussions of moral theory, Mr. Bankman-Fried is also an admirer of Peter Singer, the Princeton University philosopher widely considered the intellectual father of “effective altruism,” an approach to philanthropy in which donors strategize to maximize the impact of their giving. When Mr. Bankman-Fried was an undergraduate at the Massachusetts Institute of Technology, he had lunch with one of Mr. Singer’s disciples, Will MacAskill, a co-founder of the Centre for Effective Altruism. “He was like, ‘Oh yeah, I was raised as a utilitarian,’” Mr. MacAskill recalled. “I didn’t know that happened.”

Will MacAskill helped introduce Mr. Bankman-Fried to the concept of earning to give.Credit…Lawrence Sumulong/Getty Images

Mr. MacAskill pitched Mr. Bankman-Fried on an approach to effective altruism known as “earning to give” — a model in which do-gooders devote themselves to lucrative careers, aiming to earn as much as possible before giving it away. Mr. Bankman-Fried was intrigued. After graduating with a physics degree, he accepted a job at the high-frequency trading firm Jane Street and started donating half his salary to charity.

After leaving Jane Street in 2017, Mr. Bankman-Fried started Alameda Research, a crypto trading firm. The industry was booming. Entrepreneurs launched new coins practically every day, as the government rushed to keep up. “Everyone was talking about crypto,” Mr. Bankman-Fried said. “It’s actually something you can access as an individual — you don’t need to be a large corporation with a decade of built-up experience.” He rented office space in Berkeley, where his staff of 20-something traders worked around the clock.

Mr. Bankman-Fried essentially lived at work; most nights, he slept on a beanbag parked next to his desk. Occasionally, he’d stop by his apartment to take a shower, then change into khaki shorts and jog back to the office, the only exercise he could fit into his schedule. Colleagues were both inspired and perplexed by his commitment. “We’ve always had beds in the office. We always convert the conference room into a bedroom,” said Sam Trabucco, an early Alameda hire. “He never uses them. He likes the beanbag chair.”

Around the time he started the firm, Mr. Bankman-Fried noticed a quirk in the crypto markets: The price of Bitcoin in Japan was about 10 percent higher than in the United States. That differential presented an opportunity for cross-border arbitrage. Alameda could buy Bitcoin in the States and sell it in Japan, pocketing the profits. This seemingly simple trade was complicated by the financial sector’s deep suspicion of digital assets, which were still considered the domain of hackers and drug dealers.

Large crypto transfers set off alarm bells at U.S. banks, forcing Alameda to improvise. The young traders were convinced that crypto was the future of money, but the tools they needed to buy and sell it were decidedly old-fashioned. “We spent hours every single day inside banks, like a physical location close to the office, sending manual wires,” recalled Nishad Singh, an early Alameda employee who’s now the director of engineering at FTX.

Despite the obstacles, the arbitrage operation netted Alameda $20 million in just three weeks. But Mr. Bankman-Fried soon discovered other limits on the firm’s trading strategy. He was frustrated with the infrastructure on existing crypto exchanges, which he thought were often poorly run.

In 2018, Mr. Bankman-Fried flew to Macau for a crypto conference. It was the first time since Alameda’s founding that he’d ventured outside a one-mile radius of the Berkeley office. He traveled around Asia, meeting industry colleagues in person for the first time, and began imagining new possibilities for the business in a friendlier regulatory environment.

A few days after his arrival, he sent a Slack message to his colleagues in California:The firm was losing millions of dollars in expected value by staying in the United States.

Cultivating a mystique

“I think it’s important for people to think I look crazy,” Mr. Bankman-Fried has said.Credit…Erika P. Rodriguez for The New York Times

Within months of the conference, Mr. Bankman-Fried had moved his band of quants to Hong Kong. He eventually delegated control of Alameda to some of his longtime colleagues, and started building a new exchange. The timing of FTX’s founding was perfect: After a crash in prices, the cryptocurrency market was poised for a pandemic boom. Mr. Bankman-Fried and his colleagues soon became enormously wealthy. FTX was processing hundreds of millions of dollars in trades every day, taking a cut of two basis points (or two one-hundredths of 1 percent) on most transactions. Big-name venture-capital firms like Sequoia and SoftBank lined up to invest. FTX and its U.S. affiliate are now valued at a combined $40 billion.

As his business grew, Mr. Bankman-Fried began to establish a public profile, tweeting about his favorite video games and going on TV to explain crypto to the masses. But he refused to comport himself like a typical CNBC guest. Before one of his first TV appearances, Andy Croghan, a colleague at Alameda and FTX, urged him to clean up his look.

“I was like, ‘Sam, you’ve got to cut your hair, dude — it looks ridiculous,’” Mr. Croghan said. “And he said, ‘I honestly think it’s negative EV for me to cut my hair. I think it’s important for people to think I look crazy.’”

Expand Your Cryptocurrency Vocabulary


Card 1 of 9

A glossary. Cryptocurrencies have gone from a curiosity to a viable investment, making them almost impossible to ignore. If you are struggling with the terminology, let us help:

Bitcoin. A Bitcoin is a digital token that can be sent electronically from one user to another, anywhere in the world. Bitcoin is also the name of the payment network on which this form of digital currency is stored and moved.

Blockchain. A blockchain is a database maintained communally and that reliably stores digital information. The original blockchain was the database on which all Bitcoin transactions were stored, but non-currency-based companies and governments are also trying to use blockchain technology to store their data.

Cryptocurrencies. Since Bitcoin was first conceived in 2008, thousands of other virtual currencies, known as cryptocurrencies, have been developed. Among them are Ether, Dogecoin and Tether.

Coinbase. The first major cryptocurrency company to list its shares on a U.S. stock exchange, Coinbase is a platform that allows people and companies to buy and sell various digital currencies, including Bitcoin, for a transaction fee.

DeFi. The development of cryptocurrencies spawned a parallel universe of alternative financial services, known as Decentralized Finance, or DeFi, allowing crypto businesses to move into traditional banking territory, including lending and borrowing.

NFTs. A “nonfungible token,” or NFT, is an asset verified using blockchain technology, in which a network of computers records transactions and gives buyers proof of authenticity and ownership. NFTs make digital artworks unique, and therefore sellable.

Web3. The name “web3” is what some technologists call the idea of a new kind of internet service that is built using blockchain-based tokens, replacing centralized, corporate platforms with open protocols and decentralized, community-run networks.

DAOs. A decentralized autonomous organization, or DAO, is an organizational structure built with blockchain technology that is often described as a crypto co-op. DAOs form for a common purpose, like investing in start-ups, managing a stablecoin or buying NFTs.

Mr. Croghan learned to embrace that strategy. Mr. Bankman-Fried often takes power naps on his beanbag between meetings. At the FTX office in Hong Kong, Mr. Croghan would arrange for high-profile visitors to arrive while Mr. Bankman-Fried was still sleeping, ushering them into a conference room with a view of the slumbering chief executive. Eventually, Mr. Bankman-Fried would rouse himself and walk into the meeting, usually wearing shorts. The aim, Mr. Croghan said, was to cultivate a mystique. “Sam and I would intentionally not wear pants to meetings,” he said. “Sam literally said to me, ‘The only people I think I’d wear long pants for are Congress.’”

Mr. Bankman-Fried stuck to his word. He testified at a congressional hearing in December, wearing a dress shirt and long pants, his shoe laces tied in a bizarre-looking triple knot.He also dressed up for a meeting in April with Caroline Pham, a newly appointed commissioner on the C.F.T.C., where he discussed the leveraged trading proposal. On Twitter, Ms. Pham posted a photograph with Mr. Bankman-Fried, which she later deleted after critics accused her of cozying up to the industry. (In a statement, Ms. Pham said she posted the photo to promote transparency, and that she pressed FTX on a number of aspects of its proposal, including protections for retail customers.)

Mr. Bankman-Fried testifying before a Senate committee in February (clad in a suit). The trading product he wants to offer in the United States is risky, but he insists his company’s platform is safe.Credit…Saul Loeb/Agence France-Presse — Getty Images

Last year, Mr. Bankman-Fried moved FTX to the Bahamas, where the government has established a relatively friendly regulatory framework for the crypto industry. From his new base, Mr. Bankman-Fried can easily travel to Washington. Virtually all the major crypto companies have lobbyists there, but Mr. Bankman-Fried’s direct involvement is unusual for a chief executive.

“A firm can hire an army of D.C. lobbyists to walk into a congressperson’s office,” said Brett Harrison, the president of FTX’s U.S. arm. “That’s not nearly as effective or as important as the people who are actually running the company. We’ve had such a warm reception.”

The company’s aggressive lobbying in Washington has alarmed consumer advocates. The leveraged futures trading that FTX wants to offer in the United States can be a risky proposition, especially in a market as volatile as crypto. “It’s just something that frankly, people should not be doing,” said Lee Reiners, a former Federal Reserve official who now teaches at Duke Law School. “These are going to be largely unsophisticated traders, and I just don’t think it’s a suitable product for anyone.”

In an interview at the resort in the Bahamas, Mr. Bankman-Fried insisted that FTX’s platform was safe: The company has installed protections for retail investors, he said, and reduced the amount of leverage available to traders.“We are talking regularly with all of our regulators,” he said. “It would be pretty weird if the regulators were refusing to talk.”

The company’s Washington advocacy is only one element of Mr. Bankman-Fried’s broader agenda. He’s become an increasingly influential figure across the finance industry, and recently bought a 7.6 percent stake in Robinhood, the stock-trading platform. Over the last two years, he’s also been a prolific political fund-raiser. His $5.6 million contribution to Joe Biden’s presidential campaign made him one of the biggest Democratic donors of the cycle. And he’s funding a super PAC, Protect Our Future, which has donated more than $10 million to Carrick Flynn, a first-time candidate running for the House of Representatives in Oregon. The aggressive spending has prompted complaints in that state, where a rival campaign said Mr. Flynn was being bankrolled by “a tax-dodging billionaire in the Bahamas.” (Mr. Flynn did not respond to requests for comment; the primary is scheduled for Tuesday.)

Mr. Bankman-Fried said his contributions have nothing to do with crypto. He’s interested in the race, he said, because Mr. Flynn supports projects he’s funded with his philanthropy, like efforts to prepare for the next pandemic. Last year, Mr. Bankman-Fried gave away $50 million, funding pandemic-related causes and research into artificial intelligence. He’s also supporting climate change mitigation, as well as more idiosyncratic projects, like space-focused research into the “governance of planets.” This year, he plans to give away as much as $1 billion.

“The things that matter most are the things that have long-term impact on what the world will look like,” Mr. Bankman-Fried said. “There are trillions of people who have not yet been born.”

That’s not a universally accepted approach to philanthropy, even among effective altruists. Mr. Singer, whose scholarship helped inspire the movement, said he has gotten to know Mr. Bankman-Fried over the years and called his philanthropy “wonderful and really quite amazing.” But behind the scenes, Mr. Singer has encouraged him to tackle more of the problems bedeviling the world today.

“I’ve urged him to think about giving to an effective charity helping people in extreme poverty,” Mr. Singer said. “I’m not sure I persuaded him of that.”

No time for parties

The Bahamas prime minister, Philip Davis, has welcomed crypto investors.Credit…Erika P. Rodriguez for The New York Times

Mr. Bankman-Fried spent much of Crypto Bahamas shuttling back and forth from his laptop to the convention stage. Even his mother, Barbara Fried, had trouble getting time alone with him: As she tried to catch his eye one afternoon, a blockchain bro in a polo shirt cornered Mr. Bankman-Fried, asking him to film a birthday message for a friend. A few minutes later, he was backstage, shaking hands with Tony Blair and making awkward small talk about Brexit.

Unlike some crypto conferences, the gathering in the Bahamas was an invitation-only affair, and it drew a high-rolling crowd. As a party favor, FTX’s guests were offered discounts at a private jet company. On the bus ride to a beachside party, one attendee talked up his crypto yacht collective — “the most exclusive club that’s the most inclusive once you’re in.”

In places like Puerto Rico, the arrival of crypto millionaires chasing tax breaks has sent housing prices skyrocketing, outraging longtime residents. But the political leadership of the Bahamas has welcomed FTX with open arms. Prime Minister Philip Davis began the first day of conference programming with an enthusiastic speech, declaring that crypto entrepreneurs are “better wired for innovation and change than most people on the planet.” Later, in an interview, Mr. Davis said he’d been pleasantly surprised when Mr. Bankman-Fried wore a suit to a meeting at his office. “We want you here,” Mr. Davis recalled telling him.

Mr. Bankman-Fried skipped most of the conference festivities, but he didn’t neglect his hosting duties. He had dinner with Mr. Blair and Mr. Clinton, and rarely turned down a selfie. He also made plenty of time for Mr. Scaramucci, the chairman of SALT, a corporate events organization that helped put on the conference.

SBF’s double act with the Mooch marked the end of Crypto Bahamas. Back in the green room, FTX staffers exchanged hugs and high fives. Mr. Bankman-Fried was scrolling on his phone. He stretched and ran his hands through his hair. Then he checked his watch. The comedy bit had taken about four minutes. “I’ve got a lot of emails to catch up on,” he said.

Outside, the convention center was emptying, as hundreds of crypto enthusiasts headed for the airport. It was the calm before the coming meltdown. To leave the resort, guests had to walk through the Baha Mar casino, the largest in the Caribbean, a brightly lit hall of flashing slot machines.

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button