How the ‘Warren Buffett of Cryptocurrency’ continues to expand his empire despite the difficulties in the market

Amid the collapse of the crypto market, FTX CEO Sam Bankman-Fried has gathered assets at bargain prices, even saying he still has cash to buy if the opportunity comes.

This seems to come as a surprise, especially since other crypto giants with billions of dollars in value are falling into bankruptcy this year. FTX’s main competitor, Coinbase, has seen its share price drop by 70% and has laid off a fifth of its employees due to the plunging cryptocurrency price.

However, FTX is somehow emerging as a different case in this regard.

30-year-old billionaire Bankman-Fried says it’s a result of hoarding ample cash, keeping overheads low, avoiding lending and being able to quickly go private.

“It is important for the crypto sector to get through these difficult times unscathed. No one will benefit in the long run if we suffer damage and burnout,” Bankman-Fried told CNBC in an interview at FTX headquarters in Nassau, Bahamas.

The cryptocurrency market has lost billions of dollars in recent weeks due to the impact of the Terra USD crash as well as the failure of crypto hedge fund Three Arrows Capital. Those who lend to the Three Arrows will be the next “dominoes” to fall. In July, FTX signed an agreement giving it the option to buy BlockFi and pay the lenders after they were granted a $250 million line of credit. FTX also spent an additional $500 million on Voyager Digital, which later declared bankruptcy. Additionally, FTX is in discussions to acquire South Korean crypto exchange Bithumb.

“Not immune”

Although Bankman-Fried’s crypto exchange FTX has also suffered from the plunge in digital assets, the 30-year-old CEO said the company’s growth in market share has helped offset it somewhat. “pain”.

“It’s not that we’re not immune to it, it’s that we’ve worked hard to increase our presence over the past year. And we have a platform that is less reliant on retail investors, who are more inclined to trade according to market sentiment,” said Bankman-Fried.

The majority of FTX’s trading volume comes from clients who trade at least $100,000 per day, which are typically small volume traders, family offices and day traders, Bankman-Fried said. . FTX has also stated that its users are less sensitive to cryptocurrency prices and stay in relatively good spirits when the asset enters a bear market.

CNBC reported in August that the crypto exchange will record about $1 billion in revenue in 2021. Bankman-Fried also confirmed the financial results are on track and this year will hit the numbers. similarly, depending on how much the market falls. He also said the company is profitable.

According to Bankman-Fried, fewer employees is one of the factors that affect a company’s bottom line. FTX has about 350 employees, or about one-tenth of Coinbase’s employees.

Bankman-Fried graduated from the physics department of the Massachusetts Institute of Technology and began his career as a quantitative trader at Jane Street Capital. He bought his first bitcoin 5 years ago and gradually got sucked into this market. In 2017, he launched his proprietary trading firm Alameda Research to start trading cryptocurrencies full time. At one point, the company made $1 million a day, buying cryptocurrency on an exchange in one market and then reselling it on other global exchanges.

Alameda Research still accounts for about 6% of trading volume on FTX, according to documents obtained by CNBC . While still a major shareholder in Alameda, Bankman-Fried is not involved in the day-to-day operations of the company. He said he has been working for the past few years to eliminate conflicts of interest at Alameda.

FTX has seen spectacular growth since Bankman-Fress and co-founder Gary Wang launched the exchange in 2019. In January, the company raised $400 million at a $32 billion valuation, bringing the total venture capital investment over the past three years to about $2 billion.

FTX Trading Ltd. acquired several companies in many countries, such as Switzerland, Australia, Cyprus, Germany, Gibraltar, Singapore, Turkey and the United Arab Emirates. The exchange spends about half of its cash on bailouts and mergers, the most recent of which was Anthony Scaramucci’s 30% stake in Skybridge Capital.

“We still have some money left to make deals if it’s useful or important,” Bankman-Fried said.

Turning point

FTX benefits from going private this year. That is, they are not affected by the daily rise and fall in price like a normal stock. Bankman-Fried also said that when it is necessary to act quickly to close the deal with a partner, it does not have to spend the effort to consult thousands of shareholders.

“In fact, it’s a lot harder if you’re doing it as a public company. When you only have 3 days from the start to the end of a deal and then down the money, you can’t have enough time to go through a bunch of processes like a public company has to do,” the CEO of FTX said.

Bankman-Fried says many of its deals are decided and executed in just a few days, and in those days, his team barely sleeps.

Warren Buffett next generation?

Bankman-Fried’s latest moves in the crypto space have been compared to the investment strategy of billionaire Warren Buffett in 2008. The chairman and CEO of Berkshire Hathaway has managed to avert massive losses in the past year. global financial crisis with a $5 billion investment in Goldman Sachs. This investment then brought the corporation $3 billion in profit.

Bankman-Fried said he is looking for businesses that can be both a good investment for FTX and a place for him to support them, their customers and their ecosystem. Bankman-Fried always remembers a billionaire investor Buffett’s advice that: “You don’t have to have a brilliant mind or creative mind, you can do it by making the right decisions. for decades, and the results will accrue to you after that.”

Like Mr. Buffett, Bankman-Fried signed the Giving Pledge, an agreement between the world’s wealthiest people to donate most of their wealth to charity. The CEO of FTX said he has given away about $100 million this year to prevent future pandemics.

Bankman-Fried has the same humble personality as Mr. Buffett. Bankman-Fried is sharing a house with 10 friends and a Goldendoodle named Gopher. He owns a Toyota Corolla and insists he has no interest in more expensive things like yachts or Lamborghinis.

However, these two investors have opposite views on cryptocurrencies.

Earlier this year, Mr. Buffett said he would not buy all the bitcoin in the world even for $25 because it doesn’t generate anything. He and his companion, Charlie Munger, have both been vocal critics of cryptocurrencies over the years.

Meanwhile, Bankman-Fried said: “I don’t think he should run a company if he thinks so. I assume he didn’t really think so and that information was most likely exaggerated. And if true, then he missed the power of blockchain…”