The world has entertained endless intrigue over the spectacular collapse of Sam Bankman-Fried’s crypto house of cards. It’s hard to blame anyone for donning their tin foil hat in times like these, but sometimes, it’s better to entertain the possibility that the simplest, most direct explanation makes the most sense. And the available public evidence tells us a story of a man who was running a by the book Ponzi operation from the very beginning.

Now, we can see why it’s easy to get caught up in speculation about global ploys with huge political ramifications.

Bankman-Fried was the second biggest Democrat donor behind George Soros. He was working on policy in partnership with the top echelons of government and regulatory bodies. He bought off large chunks of the media. He appeared to be engaging in sketchy fundraising activity for the notoriously corrupt Ukrainian government. He facilitated partnerships with A-listers in Hollywood and the sports world. When he wasn't posted up at his bizarre Bahamas commune, Bankman-Fried was hanging out with some of the most powerful people in the world.

Iain Martin @iainmartin1

Tony Blair, Bill Clinton and Sam Bankman-Fried, April 2022, discuss the exciting opportunities in crypto. (Love this image. A work of art, like something from Trollope's The Way We Live Now)

Was the collapse of FTX a global ploy to “destroy crypto” and usher in regulation for a global central bank digital currency? Was it the end result of a proxy battle between the U.S. security state and foreign intelligence services?

The Dossier

The True Believer: how Sam Bankman-Fried's worldview facilitated the creation and destruction of a crypto Ponzi empire

Sam Bankman-Fried is a true believer. Bankman-Fried, or SBF, as he’s referred to in the domain he once ruled, has dedicated his life to the philosophy of effective altruism (EA). He has spent his entire adult life surrounding himself with his ideological comrades, and only his ideological comrades. SBF’s friends believe in effective altruism. His lovers…

3 months ago · 181 likes · 66 comments · Jordan Schachtel

Instead of fairly speculating about a twisted tale of international conspiracy, however, it might be time to consider the most likely explanation:

Sam Bankman-Fried has probably been committing fraud his entire career, and his fraud schemes have helped him to obtain a more powerful network that further perpetuated the fraud.

And it all started with his savant-like origin story.

A recently-published (but deleted from their website) Sequoia Capital hagiography for Bankman-Fried discusses the often repeated foundational story behind his apparently brilliant trading acumen, but with greater detail. SBF’s origin story begins with his claimed capture of the “kimchi premium.”

Every startup has a startup story. Apple was two hackers in a Los Altos garage. Google was two grad students in a Stanford dorm room. Alameda Research was just one guy in a Berkeley apartment, making a single cryptocurrency trade. That guy was Sam Bankman-Fried, or SBF to his friends. Yet the trade he made, which eventually led to the crypto-trading platform FTX, is far from the standard Silicon Valley creation tale. In 2017, when he was merely 25, SBF collapsed the so-called kimchi premium, an anomalous delta between the price of Bitcoin in much of Asia and its price in the rest of the world. It was a daring feat of arbitrage—SBF is the only trader known to have pulled this off in any meaningful way—one which quickly made him a billionaire and achieved the status of legend.

Among Wall Street’s financial elite, SBF’s Bitcoin arb is mentioned in the same hushed tones as Paul Tudor Jones’s 1987 shorting of the entire American economy, or George Soros’s 1992 raid on the Bank of England, or John Paulson’s 2008 bet against subprime mortgages. Alameda’s capture of the kimchi premium (and other trades like it) gave SBF the grubstake he needed for his next move: founding the crypto exchange FTX—a company that may very well end up creating the dominant all-in-one financial super-app of the future. Nothing is a sure bet in crypto, but just the possibility that FTX could join—or even eclipse—the big four of American banking (JPMorgan Chase, Bank of America, Wells Fargo and Citibank) means it’s already valued at $32 billion. SBF himself has amassed more wealth in a shorter period of time than anyone else, ever. The 2022 Forbes Billionaires List pegs SBF’s net worth at $24 billion. He’s now 30 years old. But we get ahead of ourselves.

The “kimchi premium” for bitcoin, as the article notes, was 50% in South Korea but only 10% in Japan, the latter country through which he executed these trades. The Sequoia write up also reveals that an unnamed “Japanese grad student,” who was a fellow effective altruist ideologue, helped him with the banking access that was necessary to facilitate these arbitrage trades.

This infographic breaks down SBF’s explanation for his arbitrage trading breakthrough in an interview with Odd Lots, via The Generalist:

Keep in mind that in 2017, plenty of savvy traders were well aware of the prospects of the bitcoin kimchi premium, but given regulatory and legal hurdles, had failed to make much of the 10% premium.

The fundraise on the surface makes sense, given that Sam was only in his mid 20s and did not have the capital to deploy much money into the trades. After claiming arbitrage success, the well-networked MIT grad, who possesses both the resume and the stereotypical weird nerd traits of the next great tech founder, again pitched the effective altruism network for cash. The Sequoia story notes that he then received a $50 million loan from Skype co-founder Jaan Tallinn, an Estonian billionaire and philanthropist within the progressive utilitarian effective altruism network.

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Did Sam Bankman-Fried really make $10 million dollars a day arbitrage trading bitcoin at a 10% premium? The math for such an achievement does not add up, and insiders believe it was a greatly exaggerated narrative.

The Dossier has discovered a post published Sunday in the Effective Altruism forum, written by a former colleague of SBF, and it casts serious doubt on the “kimchi premium” origin story.

“My recollection is that we made something like 10-30 million dollars,” but
”pretty much all of that profit had been lost to a series of bad trades and mismanagement of assets,” wrote Naia Bouscal, who now serves as CTO of a venture capital fund. ”My knowledge of the story ends when we left, and my recollection is that at that point the Japan arb had long been closed and most of our profits from it had been squandered,” Bouscal continued.

At best, SBF greatly exaggerated the wealth he created arbitrage trading. In reality, it seemed that this was part of his pitch to investors in order to make himself appear fiscally stable and independently wealthy.

In all likelihood, Sam Bankman-Fried’s crypto Ponzi was off to the races when he received the $50 million loan to execute his arbitrage trades, which according to insiders, amounted to nothing in the end.

Over the past few years, SBF has levered up the Ponzi to higher and higher levels. As we’ve reported in The Dossier, SBF and his colleagues spent the days before the collapse of FTX attempting to de-risk the Ponzi through lobbying efforts. They sought to win the day by achieving a government-sanctioned monopoly of their fraud scheme.

The Dossier

The True Believer: how Sam Bankman-Fried's worldview facilitated the creation and destruction of a crypto Ponzi empire

Sam Bankman-Fried is a true believer. Bankman-Fried, or SBF, as he’s referred to in the domain he once ruled, has dedicated his life to the philosophy of effective altruism (EA). He has spent his entire adult life surrounding himself with his ideological comrades, and only his ideological comrades. SBF’s friends believe in effective altruism. His lovers…

3 months ago · 181 likes · 66 comments · Jordan Schachtel

This is where supporting the Current Thing, partnering with A-listers, and schmoozing with powerful people in government and private industry comes in. SBF needed to continue financing the Ponzi by manipulating the media and the general public. He almost accomplished that feat, but the clock ran out before he could execute that final regulatory trade.

The "kimchi premium" origin story helped to plant the genius nerd/next Warren Buffett/J.P. Morgan/etc narratives in the minds of eager venture capital investors. In 2019, just a year and a half after organizing the arbitrage trade narrative, SBF launched FTX with a $500+ million valuation. But that was just the beginning. FTX would continue to raise billions of dollars, with the latest January 2022 round valuing the company at $32 billion.

The Ponzi almost certainly started at the very beginning, with access to a $50 million loan, which turned into an 11-figure fraud scheme, and ended in spectacular collapse.

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