I find the timing of this whole crypto debacle to be weird. 3 days ago, the Fed talked less about crypto as a potential risk to the US and world economy. 2 days ago, I notice that everyone was paying attention to $FTT.X. Probably because that's when news started to surface that something is wrong with Alameda Research. Yesterday, FTX is in the news looking to collapse in a similar fashion as Lehman Brothers due to its heavy exposure to Alameda Research. Yesterday, it was assumed that Binance will bail out FTX.

Today, Binance steps back from its plans to bail out FTX and $BTC.X is trading at around $16,000.

While I'll let everyone else on Twitter and Commonstock talk about the issues that are going on and how they'll affect crypto, what I want to talk about here is the timing of this sudden collapse of Sam Bankman-Fried's empire. Though Alameda Research and FTX seem to be separate entities (please let me know if this is an incorrect detail), it's like the issues that happened in a colony of SBF's empire (aka Alameda Research) then affects his empire's capital, FTX, severely.

In my head, I can envision the whole thing like the Black Plague in Europe, where Alameda Research plays Kaffa (a city in Crimea where the Black Plague first enters Europe), and a ship from Kaffa brings the Black Plague to Italy, where the Black Plague then spreads to the entire European continent (and that would be FTX in this context).

Examples like this sound crazy, but I hope it helps you understand my perspective on the bizarreness of SBF's business empire's collapse.

I wouldn't be surprised if all of these problems happening in FTX first started when FTX decided to acquire the bankrupt crypto exchange firm Voyager Digital. During that time, Voyager lost huge sums of money as they used the reserves that their customers put on their Voyager accounts to make loans to 3AC (and we know what happened to 3AC). FTX's purchase of Voyager was seen as SBF"s way of stopping the feared "domino effect" that 3AC and Voyager's collapse would bring to the crypto world. Others see it as FTX's way of acquiring assets at dirt-cheap prices. If SBF had those two thoughts, SBF's logic can be attributed to Jamie Dimon's decision to purchase Bear Sterns during the Great Financial Crisis or when Bank of America decided to buy out Merrill Lynch.

There are rumors that Voyager did lend money to FTX, but as I kept searching the internet for evidence of it, I have been inconclusive. I don't know what loans FTX got from acquiring Voyager, but if they were loans to FTX, then FTX was able to pay down their debts at a very cheap price. However, it was confirmed by CNBC that Voyager lent hundreds of millions of dollars to Alameda Research (and we all know who owns it).

I understand why SBF would want to use FTX to bail out Voyager and save Alameda Research. Both Alameda Research and FTX have a strong connection to each other. Alameda Research had nearly 40% of its balance sheet filled with $FTT.X. If Alameda Research couldn't pay its debts to Voyager, Alameda would have to sell a bunch of $FTT.X, which would've hurt FTX directly. Having the public learn about it at the beginning of this month was what led to a massive bank run on $FTT.X.

FTX and Alameda would often transfer $FTT.X tokens to each other. Alameda would buy more $FTT.X tokens every time FTX would want to raise capital to buy out another crypto firm. FTX would buy $FTT.X from Alameda as a way to give Alameda liquidity. This huge reliance that SBF's empire had on this relationship was the Achille's heel of SBF's business empire. And the fear that spread throughout the crypto community exposed it.

In a way, Binance knew about it long before everyone else and that's probably why they sold $2.1 billion worth of $FTT.X. At the time, people saw it as a sign that CZ and SBF are parting ways. Now that I think of it, it's weird that those same people were hopeful that Binance would bail out FTX. If they truly had a bitter rivalry, in a way, CZ got revenge by playing SBF's hopes up and then later backing out.

At least SBF has a 7.6% stake in $HOOD, which has a better chance of surviving crypto winter and becoming profitable in the future. But it's possible that SBF could sell his Robinhood shares in order to add liquidity to his personal balance sheet. SBF has already donated huge sums of money to candidates and super PACs for the recent midterm elections (personally, I'm not fond of the super wealthy donating huge sums of money in elections), and honestly, I think he should've saved that money to save his business.

At the beginning of this memo, I noted that the timing of the whole FTX/Alameda Research collapse was intriguing. Days ago, crypto influencers were glad that the Fed didn't cite crypto as a risk to the financial system as often as other issues like China-Taiwan, Russia-Ukraine, inflation, etc. With bad news coming shortly after it, I'm glad that crypto Twitter handled the $FTT.X and FTX collapse better than how stock Twitter reacted to bad news in the stock market.

If the Fed did cite crypto as a risk to the financial system more often in their recent report, then I bet the FTX debacle would be causing people to scream "recession"

Sources: