A new report claims Sam Bankman-Fried’s financial crypto empire faced troubles years before the FTX exchange collapse.
According to the Wall Street Journal, Bankman-Fried’s trading firm Alameda Research helped SBF build up his reputation before launching FTX, but Alameda’s investing success was not what it seemed.
Alameda’s first big financial play was arbitrage in Japan when, at the time, Bitcoin (BTC) was selling for higher prices than could be bought elsewhere. Alameda capitalized on this price disparity.
Per the Wall Street Journal report, Alameda profited between $10 million and $30 million with the arbitrage play before the price gap differential closed in 2018. The cost of the complex transactions reduced profits and it was short-lived.
Then, Alameda’s trading algorithm was losing money for the trading firm by making wrong predictions on price moves, according to the report. Another financial hit came through losses on the payments network XRP.
According to the report, by the spring of 2018, Alameda lost two-thirds of its assets for a total of $30 million remaining. But 2021 brought Alameda $1 billion in profits as crypto prices reached all-time highs, per the report.
Leading up to the 2021 crypto collapse, Alameda invested $100 million in a Kazakhstan Bitcoin mining company and $1 billion into the company, Genesis Digital Assets, a Bitcoin mining company based in the United States, according to the report.
While Alameda only spent $10.5 million on startups in 2020, that number increased to $1.4 billion in 2021.
According to the report, the 2022 crypto collapse put Alameda into a jam with lenders requesting their funds back. Bankman-Fried now stands accused of wrongfully using FTX customer funds to try and bail out Alameda. As a result, both Alameda Research and FTX sought bankruptcy protection in November 2022.
The former crypto billionaire pleaded not guilty to fraud and other criminal charges on January 3rd before U.S. District Judge Lewis Kaplan in Manhattan. A trial date is set for October 2.
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