In our last post, we looked at the epic rise of SBF and FTX. In this post, we examine the Ten Days of November that shook FTX to its core and resulted in its spectacular collapse.
Post #1: The CoinDesk FTX Timeline
The best place to start is this timeline, which is taken from this CoinDesk post. I’ve also added the amount withdrawn from FTX, which was taken from this Reuters article:
Post #2: The Leaking of the Alameda Balance Sheet
What must be said, the much vaunted transparency of the blockchain did not bring down the FTX empire. Instead, it was classic journalism at CoinDesk. The killer quote from the article:
“That balance sheet is full of FTX – specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace. While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto. The situation adds to evidence that the ties between FTX and Alameda are unusually close.”
As noted in the above timeline, this is what prompted Changpeng Zhao (CZ) to tweet this and then caused the billions to be withdrawn, as mentioned in the Reuters article.
Post #3: Prelude to the FTX Collapse
The first of Coffeezilla’s video on the collapse really captures not just the rivalry between SBF and CZ, but the killer-business logic that was potentially at play. Far from the crypto-utopian visions of an egalitarian ecosystem, we see the same sort of cutthroat competition in the banking world itself. For example, one theory holds that Bear-Stearns collapse was triggered in the 2007-2008 Financial Crisis. The reason? Payback. Bear-Stearns did not help out in the Long-Term Capital Management (LTCM) bailout and so Goldman-Sachs returned the favour almost 20 years to the day.
Post #4: FTX and the Mystery of the Stolen Crypto
This video, published 3 days after the last, explores the complex web of relationships that is FTX (far more complex than Lehman), but zooms in on the entanglement between Alameda Research and FTX. The big reveal here is that an Alameda insider noted that “not only did they [Alameda Research] have access to FTX's back end [but] they [also] managed withdrawals for FTX and had a giant line of credit that they could draw on, which seems like partially may have been users funds something that no separate entity would normally have”. The insider was corroborated by the Wall Street Journal.
Post #5: An Inside Look at the Chaos and Ineptitude at FTX/Alameda
Shout out to Tim Bauer for passing on this link from MilkyEggs! (Bloomberg’s Matt Levine, also referred to the post here with all the necessary caveats). It gives more details around the sheer chaos and ineptitude that existed at FTX and Alameda. With respect to the chaos, it gives some details around SBF’s mental state. It is quite the contrast to the image that was portrayed to the outside world, which we saw in the first video in the last post. With respect to ineptitude, it highlights the “farcically simplistic” accounting records the company kept.
In terms of the top three takeaways, it firstly casts doubts on the origin story of SBF. The post alleges (based on an insider) that SBF quickly lost all the wealth he made from those bitcoin US vs Japan arbitrage trades. Secondly, it gives some insight into the inordinate amount of risk SBF was taking. Lastly, it attempts to breakdown the losses incurred by FTX-Alameda. That is, they attempt to piece together where the money - $15.5 billion in total – was spent. Also, do check out the postscript where they “found” another $3 billion in losses. Of course, this is not an official audit or anything like that. However, it’s nice to get a more wholistic understanding of the FTX-Alameda situation – beyond the puff pieces in the mainstream press.
In our next post, we will begin exploring the aftermath of FTX collapse.
Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.
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