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The Vegan Billionaire Upended the Cryptocurrency Market, and Could Next Up the Stock Market

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Sam Bankman-Fried (SBF) created FTX because he was fed up with the cryptocurrency exchanges of the time.

Original title: "Vegetarian Billionaire Upends Cryptocurrency Market, Next May Upend Stock Market"

Original author: Alexander Osipovich

Original source: Wall Street Journal

I want 24 every day Hours to trade Tesla stock? Or want to bet on how Robinhood Markets Inc. stock will perform in its IPO? Or want to bet on whether Trump will return to the presidency in 2024?

Everything you could want on FTX, and much more. As one of the fastest growing cryptocurrency exchanges in the world, FTX offers several innovative products and services.

FTX originated as the brainchild of 29-year-old billionaire SBF , a vegetarian, shares an apartment with roommates and often sleeps on a beanbag in the office. The young man from California gained attention last year for donating $5 million to a group supporting Joe Biden's campaign, making him Biden's first, according to a Wall Street Journal analysis. The second largest CEO supporter, second only to Michael Bloomberg.

Recently, FTX signed a $135 million , a 19-year deal to buy the naming rights to the home of the Miami Heat. The deal, which was approved by the National Basketball Association last week, will also mean that the stadium, now known as American Airlines Arena, will be renamed FTX Arena starting with the 2021-22 NBA season. FTX said the deal was aimed at boosting the growth of its smaller U.S. exchange, which offers fewer products than FTX’s overseas operations.

American Airlines Arena, home of the NBA's Miami Heat, will soon be renamed For the FTX gym.

Image source: JASEN VINLOVE/REUTERS

Cryptocurrency is gaining popularity. This year, the value of bitcoin has more than doubled, and Coinbase Global Inc., one of the largest cryptocurrency companies in the United States, this week Listed on the NASDAQ stock market. If you ask the public what they think, some will say that Coinbase’s $84 billion market capitalization shows that the Bitcoin mania is out of control, while others will say that it shows that traditional finance is about to be replaced by Conquered by disruptors of the cryptocurrency world.

For many cryptocurrency industry insiders, The truly disruptive move is not led by Coinbase, which is regulated and has long been making it easy for newbies to buy bitcoin. Offshore exchanges like FTX are even more exciting. They are under the purview of US regulators Operating out of the US, it offers digital currency and cryptocurrency derivatives products, complex products that allow traders to place high-risk bets on the future price of Bitcoin, Ethereum and other cryptocurrencies.

Before entering the cryptocurrency industry, SBF worked for the quantitative trading giant Jane Street Capital LLC. The FTX exchange he created and operated was stable and reliable, surpassing He has won many accolades for donating 1% of FTX revenue to charity, but his aggressive and even ambitious approach to new markets, including some ways to circumvent US regulations, has also attracted a lot of praise. got a lot of attention.

For example, FTX was the first A major cryptocurrency exchange offering tokenized shares (aka Equity Tokens), digital currencies that track the value of shares in companies like Tesla (Tesla), GameStop Corp. or BioNTech SE.It also offers a popular and innovative product, pre-IPO contracts, which allow overseas traders to predict the expected valuation of companies such as Robinhood.

Although FTX's equity token market is relatively small (about $1.3 billion in trading volume so far this year, it only accounts for one day's trading volume of Tesla stock ), but in the eyes of cryptocurrency proponents, this is beneficial to liberate stocks from unnecessary constraints. Unlike ordinary stocks, equity The token can be traded 24 hours a day, not limited to the business hours of the US exchanges, and investors around the world can trade it. On April 12, Beijing time, Binance launched their own version of the FTX equity token.

SBF said: "Actually, the stock exchange still has a lot of room for innovation."

Image credit: ANTHONY KWAN for The Wall Street Journal

SBF hopes that US regulators will eventually accept such products. He said in an interview; It's only 9:30 am to 4 pm, which is kind of weird. In fact, there is a lot of room for innovation in the stock exchange."

Cryptocurrency skeptics say investors should be wary. "These things are very novel," said Lee Reiners, executive director of Duke University's Center for Global Financial Markets. And complex, destined to explode at some point, at that time FTX will be like an ant on a hot pot, being targeted by regulators and law enforcement agencies.”

SBF says equity tokens are not much more complicated than American depositary receipts, which allow U.S. investors to trade shares in overseas companies .FTX tokens can be redeemed for actual corresponding shares at the regulated German investment company CM-Equity AG, which can make the price of the token consistent with the actual stock .The pre-IPO contract adds another conversion link. When the corresponding company goes public, these contracts will be converted into the company’s equity certificate.

Such products fall into a gray area of regulation and regulation. Lawyers said that if such products are traded in the United States, they are likely to be regulated by the US Securities and Exchange Commission. This will Force FTX to comply with various regulations, which may include restricting the availability of its equity tokens to small investors. Therefore, to avoid this situation, FTX operates overseas and blocks US customers.

But such a strategy carries risks. Last October, federal prosecutors charged another offshore cryptocurrency exchange

The founders of BitMEX violated anti-money laundering laws because the company was not registered with U.S. regulators and allegedly did not rigorously vet U.S. citizens using its platform. Turning a blind eye. The founder of BitMEX has denied the allegations.

FTX monthly transaction volume

Note: Statistics on April 14 Data source: FTX

Exchanges make money by charging transaction users fees, and the more trading volume, the more money the exchange makes. FTX said that so far this month, it has processed about 107 transactions per day on average. billion in trades, compared with an average daily trade volume of about $900 million six months ago. This makes FTX one of the top cryptocurrency exchanges in the world, even though the exchange only started operations in May 2019.

Major exchanges ranked by average daily trading volume

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Note: Ranking based on data from 4.1-4.14 (including spot and derivatives transactions)

Source: CryptoCompare

According to data provider CryptoCompare's data, in comparison, no derivatives transactions Coinbase’s average daily trading volume for the month is about $2.6 billion. But compared with traditional derivatives exchanges such as CME Group Inc., FTX’s average daily trading volume is also not worth mentioning. The transaction volume is in the trillions of dollars.

FTX has always been known for its rapid development of new markets. President of cryptocurrency trading company GSR Rich Rosenblum said, "There is no doubt that FTX has definitely created a precedent in terms of product innovation and the speed at which new products are launched." While some of these products are just interesting side products that have little to do with FTX's cryptocurrency product focus.

For example, during the US presidential election, FTX launched a prediction market, and cryptocurrency traders who pay close attention to the election can bet on the outcome. In such markets, assets are bet on future events, and market prices reflect the expected probabilities of various outcomes. Ahead of Election Day, markets were pricing in a 30 percent chance of Trump winning. And after Trump won Florida, the winning rate once soared to 80%, and the winning rate fell as the results of the later voting came out.

According to FTX's Trump 2024 contract market data, the former president has a 9% chance of returning to the White House, but traders There are not many, which also means not to take this data too seriously.

SBF graduated from the Department of Physics of the Massachusetts Institute of Technology, and his parents are both professors at Stanford Law School. His initial expectation was to work in the academic circle like his parents. But later, he came into contact with the "effective altruism" movement and became a supporter and practitioner of the idea, "effective altruism" encourages people to maximize their their positive impact on society. So he decided to go into finance, hoping to make a lot of money so he could donate it to charity.

In 2017, seeing the opportunities in Bitcoin, SBF established Alameda Research. He went on to found FTX with some colleagues from Alameda, partly out of frustration with the quality of existing cryptocurrency exchanges.

SBF supports organizations including OpenAI, an scientific research laboratories to help human society), and the Nuclear Threat Initiative (Nuclear Threat Initiative, which aims to reduce the threat of nuclear and biological weapons). SBF said he was motivated by similar considerations in supporting the Biden Organization's donation: He believes defeating Trump is essential for geopolitical stability.

Despite his generous contributions to the Biden campaign, SBF has yet to meet President Biden. "I'd love to talk to him about cryptocurrency regulation, but I don't think he cares," SBF said.