Sam Bankman-Fried, owner of an expanding crypto empire, is trying to bail out the industry after a sharp downturn.
7 min
Crypto is ailing. Sam Bankman-Fried is betting a billion dollars he can fix it.
The chief executive of cryptocurrency exchange FTX Trading Ltd. has appointed himself the industry’s saviour—and crypto investors are closely watching his moves after months of market carnage. This year, he bailed out a troubled digital-currency lender and tried to stabilize another. He acquired crypto exchanges in Canada and Japan. He appeared in magazine ads opposite supermodel Gisele Bündchen in a bid to keep mainstream investors enthusiastic about crypto despite the downturn.
That kind of speed is routine for Mr. Bankman-Fried, a 30-year-old billionaire with a mop of curly hair who sleeps a few hours a night and toys with a fidget spinner during interviews. Last year, when regulatory scrutiny of crypto led Mr. Bankman-Fried to move FTX’s headquarters from Hong Kong to the Bahamas, dozens of employees relocated to the island nation within about a month.
Mr. Bankman-Fried says his ultimate goal is to bring crypto to the masses. He wants to make FTX a household name and use the technology behind bitcoin to reinvent traditional finance, including the stock market and ordinary consumer payments.
He has a lot of work to do. More than a decade after bitcoin’s birth, proponents still struggle to explain the value of digital currencies to a broad audience. Bitcoin has fallen nearly 70% from its November peak and the crash has erased $2 trillion of value from the crypto market, hurting millions of investors.
Not all of Mr. Bankman-Fried’s moves have paid off. An investment in Japan has proved rocky for FTX. And the trading firm he owns alongside FTX, Alameda Research, took losses when it tried to prop up troubled crypto lender Voyager Digital Ltd. Alameda lent Voyager $75 million and increased its stake in the company to 9.5%—only for Voyager to file for bankruptcy less than two weeks later.
“We want to do what we can to stem contagion, and sometimes that’s going to mean that we try to help out in cases where it’s not enough,” Mr. Bankman-Fried said. “If that never happened, I’d feel that we were being way too conservative.”
Like other crypto exchanges, FTX’s core business is to facilitate the buying and selling of digital currencies, and it takes a small cut of transactions. The firm has grown into a juggernaut since it was founded three years ago. With only about 300 employees, FTX is the world’s third-biggest crypto exchange by volume, doing US$9.4 billion worth of trades on an average day, according to data provider CoinGecko.
The firm made net income of US$388 million on $1.02 billion of revenue last year, according to a person familiar with the matter. It has stayed profitable in 2022 even as crypto prices slumped, Mr. Bankman-Fried said. FTX was valued at US$32 billion during its last funding round in January.
Now, with bitcoin hovering around $21,000—roughly in line with its level in late 2020, before last year’s big bull market—Mr. Bankman-Fried says the worst is over.
“Anything could happen, obviously, but as far as I know, we’ve seen most of the contagion already flushed out of the system,” he said.
The plea for help from the CEO of BlockFi Inc., a digital-currency lender, came on a Saturday evening in June. Mr. Bankman-Fried saw the message around 11 p.m. after playing padel, a tennis-like sport, with colleagues. He jumped into his Toyota Corolla with fellow FTX executive Ramnik Arora, turned on the air conditioning and returned the call.
BlockFi was essentially a crypto bank, taking deposits and lending them to borrowers that use the funds for trading purposes. In return, depositors earned interest on their digital money—usually at much higher rates than traditional banks offered on dollar deposits. BlockFi and other crypto lenders did brisk business until May, when the swift collapse of two cryptocurrencies called TerraUSD and Luna sent shock waves through the market and blew up hedge fund Three Arrows Capital Ltd., one of the biggest borrowers in crypto.
Fears of a 2008-style financial contagion spread. On June 12, a popular crypto lender called Celsius Network LLC suspended withdrawals. Other lenders, including BlockFi and Voyager, were threatened with the crypto equivalent of a run on the bank.
The crash set off rounds of calls into FTX’s headquarters in the Bahamas. Around 15 crypto firms sought money from FTX during a two-week stretch in June, including “miners” who run computer algorithms to generate bitcoin, as well as Celsius itself, Mr. Arora recalled.
Celsius, which has since filed for bankruptcy, didn’t respond to a request for comment.
FTX concluded that Celsius was beyond saving, FTX executives said, but that BlockFi was healthier. Following a Sunday morning Zoom meeting with BlockFi’s leadership on June 19, the day after the initial call from his car, Mr. Bankman-Fried decided to push for a deal.
By throwing BlockFi a lifeline, Mr. Bankman-Fried also seized the opportunity to expand his empire.
In the final deal unveiled on July 1, FTX agreed to loan BlockFi $400 million with an option to buy the firm for up to US$240 million. That price is a steal compared with the $4.75 billion valuation that BlockFi reached in July 2021, according to PitchBook data.
“It’s certainly not the outcome that we were expecting last summer,” BlockFi CEO Zac Prince said, but he called the FTX deal a win for the company and its clients. Unlike other offers BlockFi received, which could have forced BlockFi’s retail customers to lose part of their deposits, the FTX transaction was designed to keep depositors whole.
BlockFi says it has more than 650,000 funded accounts. If FTX ends up buying BlockFi, it will expand into the lending market, adding the crypto version of a big bank to Mr. Bankman-Fried’s portfolio.
Mr. Bankman-Fried says he wants to turn FTX into a sort of financial supermarket, offering everything from lending to stock trading to payments.
“The idea generating this is, ‘What do you actually want to do with your money, as the typical consumer? What are the things that are actually valuable for your day-to-day life?’” he said.
Mr. Bankman-Fried is a longtime vegan. He majored in physics at the Massachusetts Institute of Technology and worked for quantitative-trading giant Jane Street Capital for three years before diving into crypto. He is the son of two professors at Stanford Law School.
Bloomberg recently estimated his net worth at $11.9 billion, down from nearly $26 billion last year before the crypto crash. He is an adherent of effective altruism, a philosophical movement that says individuals should maximize their positive impact on society by making substantial money and giving it away. His favoured causes include pandemic prevention and preventing artificial intelligence from harming humanity.
People close to him express surprise at how naturally Mr. Bankman-Fried became a public figure. He has become a regular in Washington, testifying before Congress, promoting FTX’s agenda and lobbying for the crypto industry.
“He has had to transition from talking to a purely crypto audience to dealing with lawmakers, journalists and the public,” said Chris McCann, a partner at Race Capital, an early investor in FTX. “In 2019 he didn’t have a lot of those skill sets. He was much more of a shy, quirky, geeky person.”
Mr. Bankman-Fried’s first headquarters was a rented house in Berkeley, Calif., where he started Alameda Research in 2017—outfitted with desks and computers bought on Amazon. He later moved Alameda to Hong Kong, where crypto regulation was lighter than in the U.S.
Alameda sought to capture profits from the bitcoin market, where a mishmash of exchanges enabled arbitrage opportunities—the ability to buy a coin in one location and sell it elsewhere for more. One early strategy involved buying bitcoin in the U.S. and then selling it in Japan, where it commanded a premium.
He launched FTX in 2019, betting that his team could build a better exchange than the incumbents. Last year, amid mounting scrutiny of crypto by global regulators, Mr. Bankman-Fried decided to move FTX’s headquarters to the Bahamas, where the government had established a crypto-friendly regulatory regime.
Today FTX is based in an office park ringed by palm trees and dominated by a sun-baked parking lot. Mr. Bankman-Fried lives in a nearby luxury apartment complex. Although he has a reputation for living frugally—he has long lived with housemates and often sleeps on a beanbag at work—real-estate records show a unit of FTX paid $30 million for a five-bedroom penthouse there.
Mr. Bankman-Fried said he’s one of 10 FTX colleagues who share the apartment. “Obviously, it would be a ridiculous place for me to be living alone,” he said.
FTX expanded earlier this year by acquiring Japanese crypto exchange Liquid, which was hit by a $97 million hack in August 2021.
Shortly after the hack, Seth Melamed, then a Liquid executive, was getting on a plane to Tokyo. Liquid faced insolvency, customers were angry, and Mr. Melamed worried that Japanese police might arrest him at the airport. He wrote to Mr. Bankman-Fried on the Telegram messaging app.
His note read: “Fully understand this unusual, but if FTX would consider investing or acquiring Liquid it would salvage our business and benefit the crypto community more broadly.”
The plane had no Wi-Fi. When it landed, he was relieved to find no police waiting for him and a response from Mr. Bankman-Fried: “happy to take a look!”
A few days later, FTX agreed to loan Liquid $120 million, keeping it afloat and setting the stage for the takeover.
It wasn’t an entirely smooth acquisition. FTX ended up losing thousands of Japanese customers who were already using FTX and refused to move over to the local unit regulated by Japan’s Financial Services Agency, a person familiar with the matter said.
Mr. Melamed, now chief operating officer of FTX Japan, said, “We are confident we can return to previous levels of activity by Japanese users at FTX before the end of this year and surpass this by 2023.”
In June, FTX agreed to buy Canadian crypto exchange Bitvo Inc. FTX has also amassed licenses to provide financial services in Australia, Dubai and the European Union as part of an international push.
FTX’s ambitions extend to traditional markets. After buying a registered U.S. brokerage firm last year, it recently allowed American customers to trade stocks on its app alongside bitcoin. In May, Mr. Bankman-Fried spent $648 million of his personal fortune to buy a 7.6% stake in Robinhood Markets Inc., maker of the popular trading app. He revealed his purchase after Robinhood stock plunged nearly 80% from its initial public offering; the shares have edged slightly higher since then.
Mr. Bankman-Fried is the majority owner of both FTX and Alameda, an arrangement that has drawn criticism from crypto skeptics as well as some digital-currency traders. In traditional markets such as stocks and futures, exchanges are required to be neutral platforms that don’t benefit one trader over another. Regulators discourage them from being intertwined with trading firms, considering it a conflict of interest. No such restrictions exist in crypto.
Mr. Bankman-Fried said Alameda doesn’t get special privileges on FTX. While it was initially a major participant on FTX, helping to juice trading activity, it has since dropped to a small share of trading volumes, he said.
Last year Mr. Bankman-Fried resigned from his role as CEO of Alameda, saying he was spending most of his time on FTX. The firm continues to generate significant profits for him. One cryptocurrency wallet controlled by Alameda—where the firm holds some of its funds—has generated more than $550 million in trading profits since 2020, according to Nansen, a blockchain analytics firm.
FTX amassed a war chest of some $2 billion in a series of funding rounds in 2021 and early 2022, while crypto prices were still high. Investors in FTX included established asset managers such as Singapore state-owned investment company Temasek Holdings Pte. Ltd. and the Ontario Teachers’ Pension Plan. The funding allowed FTX to make acquisitions after crypto crashed.
Mr. Bankman-Fried said that FTX has a few billion in cash that it could use for other deals—money it keeps in dollars, not crypto.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: August 23, 2022.
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What a quarter-million dollars gets you in the western capital.
Alexandre de Betak and his wife are focusing on their most personal project yet.
Subsidised minivans, no income taxes: Countries have rolled out a range of benefits to encourage bigger families, with no luck
7 min
Imagine if having children came with more than $150,000 in cheap loans, a subsidised minivan and a lifetime exemption from income taxes.
Would people have more kids? The answer, it seems, is no.
These are among the benefits—along with cheap child care, extra vacation and free fertility treatments—that have been doled out to parents in different parts of Europe, a region at the forefront of the worldwide baby shortage. Europe’s overall population shrank during the pandemic and is on track to contract by about 40 million by 2050, according to United Nations statistics.
Birthrates have been falling across the developed world since the 1960s. But the decline hit Europe harder and faster than demographers expected—a foreshadowing of the sudden drop in the U.S. fertility rate in recent years.
Reversing the decline in birthrates has become a national priority among governments worldwide, including in China and Russia , where Vladimir Putin declared 2024 “the year of the family.” In the U.S., both Kamala Harris and Donald Trump have pledged to rethink the U.S.’s family policies . Harris wants to offer a $6,000 baby bonus. Trump has floated free in vitro fertilisation and tax deductions for parents.
Europe and other demographically challenged economies in Asia such as South Korea and Singapore have been pushing back against the demographic tide with lavish parental benefits for a generation. Yet falling fertility has persisted among nearly all age groups, incomes and education levels. Those who have many children often say they would have them even without the benefits. Those who don’t say the benefits don’t make enough of a difference.
Two European countries devote more resources to families than almost any other nation: Hungary and Norway. Despite their programs, they have fertility rates of 1.5 and 1.4 children for every woman, respectively—far below the replacement rate of 2.1, the level needed to keep the population steady. The U.S. fertility rate is 1.6.
Demographers suggest the reluctance to have kids is a fundamental cultural shift rather than a purely financial one.
“I used to say to myself, I’m too young. I have to finish my bachelor’s degree. I have to find a partner. Then suddenly I woke up and I was 28 years old, married, with a car and a house and a flexible job and there were no more excuses,” said Norwegian Nancy Lystad Herz. “Even though there are now no practical barriers, I realised that I don’t want children.”
Both Hungary and Norway spend more than 3% of GDP on their different approaches to promoting families—more than the amount they spend on their militaries, according to the Organization for Economic Cooperation and Development.
Hungary says in recent years its spending on policies for families has exceeded 5% of GDP. The U.S. spends around 1% of GDP on family support through child tax credits and programs aimed at low-income Americans.
Hungary’s subsidised housing loan program has helped almost 250,000 families buy or upgrade their homes, the government says. Orsolya Kocsis, a 28-year-old working in human resources, knows having kids would help her and her husband buy a larger house in Budapest, but it isn’t enough to change her mind about not wanting children.
“If we were to say we’ll have two kids, we could basically buy a new house tomorrow,” she said. “But morally, I would not feel right having brought a life into this world to buy a house.”
Promoting baby-making, known as pro natalism, is a key plank of Prime Minister Viktor Orbán ’s broader populist agenda . Hungary’s biennial Budapest Demographic Summit has become a meeting ground for prominent conservative politicians and thinkers. Former Fox News anchor Tucker Carlson and JD Vance, Trump’s vice president pick, have lauded Orbán’s family policies.
Orbán portrays having children inside what he has called a “traditional” family model as a national duty, as well as an alternative to immigration for growing the population. The benefits for child-rearing in Hungary are mostly reserved for married, heterosexual, middle-class couples. Couples who divorce lose subsidised interest rates and in some cases have to pay back the support.
Hungary’s population, now less than 10 million, has been shrinking since the 1980s. The country is about the size of Indiana.
“Because there are so few of us, there’s always this fear that we are disappearing,” said Zsuzsanna Szelényi, program director at the CEU Democracy Institute and author of a book on Orbán.
Hungary’s fertility rate collapsed after the fall of the Soviet Union and by 2010 was down to 1.25 children for every woman. Orbán, a father of five, and his Fidesz party swept back into power that year after being ousted in the early 2000s. He expanded the family support system over the next decade.
Hungary’s fertility rate rose to 1.6 children for every woman in 2021. Ivett Szalma, an associate professor at Corvinus University of Budapest, said that like in many other countries, women in Hungary who had delayed having children after the global financial crisis were finally catching up.
Then progress stalled. Hungary’s fertility rate has fallen for the past two years. Around 51,500 babies have been born there this year through August, a 10% drop compared with the same period last year. Many Hungarian women cite underfunded public health and education systems and difficulties balancing work and family as part of their hesitation to have more children.
Anna Nagy, a 35-year-old former lawyer, had her son in January 2021. She received a loan of about $27,300 that she didn’t have to start paying back until he turned 3. Nagy had left her job before getting pregnant but still received government-funded maternity payments, equal to 70% of her former salary, for the first two years and a smaller amount for a third year.
She used to think she wanted two or three kids, but now only wants one. She is frustrated at the implication that demographic challenges are her responsibility to solve. Economists point to increased immigration and a higher retirement age as other offsets to the financial strains on government budgets from a declining population.
“It’s not our duty as Hungarian women to keep the nation alive,” she said.
Hungary is especially generous to families who have several children, or who give birth at younger ages. Last year, the government announced it would restrict the loan program used by Nagy to women under 30. Families who pledge to have three or more children can get more than $150,000 in subsidised loans. Other benefits include a lifetime exemption from personal taxes for mothers with four or more kids, and up to seven extra annual vacation days for both parents.
Under another program that’s now expired, nearly 30,000 families used a subsidy to buy a minivan, the government said.
Critics of Hungary’s family policies say the money is wasted on people who would have had large families anyway. The government has also been criticised for excluding groups such as the minority Roma population and poorer Hungarians. Bank accounts, credit histories and a steady employment history are required for many of the incentives.
Orbán’s press office didn’t respond to requests for comment. Tünde Fűrész, head of a government-backed demographic research institute, disagreed that the policies are exclusionary and said the loans were used more heavily in economically depressed areas.
Government programs weren’t a determining factor for Eszter Gerencsér, 37, who said she and her husband always wanted a big family. They have four children, ages 3 to 10.
They received about $62,800 in low-interest loans through government programs and $35,500 in grants. They used the money to buy and renovate a house outside of Budapest. After she had her fourth child, the government forgave $11,000 of the debt. Her family receives a monthly payment of about $40 a month for each child.
Most Hungarian women stay home with their children until they turn 2, after which maternity payments are reduced. Publicly run nurseries are free for large families like hers. Gerencsér worked on and off between her pregnancies and returned full-time to work, in a civil-service job, earlier this year.
She still thinks Hungarian society is stacked against mothers and said she struggled to find a job because employers worried she would have to take lots of time off.
The country’s international reputation as family-friendly is “what you call good marketing,” she said.
Norway has been incentivising births for decades with generous parental leave and subsidised child care. New parents in Norway can share nearly a year of fully paid leave, or around 14 months at 80% pay. More than three months are reserved for fathers to encourage more equal caregiving. Mothers are entitled to take at least an hour at work to breast-feed or pump.
The government’s goal has never been explicitly to encourage people to have more children, but instead to make it easier for women to balance careers and children, said Trude Lappegard, a professor who researches demography at the University of Oslo. Norway doesn’t restrict benefits for unmarried parents or same-sex couples.
Its fertility rate of 1.4 children per woman has steadily fallen from nearly 2 in 2009. Unlike Hungary, Norway’s population is still growing for now, due mostly to immigration.
“It is difficult to say why the population is having fewer children,” Kjersti Toppe, the Norwegian Minister of Children and Families, said in an email. She said the government has increased monthly payments for parents and has formed a committee to investigate the baby bust and ways to reverse it.
More women in Norway are childless or have only one kid. The percentage of 45-year-old women with three or more children fell to 27.5% last year from 33% in 2010. Women are also waiting longer to have children—the average age at which women had their first child reached 30.3 last year. The global surge in housing costs and a longer timeline for getting established in careers likely plays a role, researchers say. Older first-time mothers can face obstacles: Women 35 and older are at higher risk of infertility and pregnancy complications.
Gina Ekholt, 39, said the government’s policies have helped offset much of the costs of having a child and allowed her to maintain her career as a senior adviser at the nonprofit Save the Children Norway. She had her daughter at age 34 after a round of state-subsidised IVF that cost about $1,600. She wanted to have more children but can’t because of fertility issues.
She receives a monthly stipend of about $160 a month, almost fully offsetting a $190 monthly nursery fee.
“On the economy side, it hasn’t made a bump. What’s been difficult for me is trying to have another kid,” she said. “The notion that we should have more kids, and you’re very selfish if you have only had one…those are the things that took a toll on me.”
Her friend Ewa Sapieżyńska, a 44-year-old Polish-Norwegian writer and social scientist with one son, has helped her see the upside of the one-child lifestyle. “For me, the decision is not about money. It’s about my life,” she said.
