Winner and loser, a gamble that bets the entire currency circle

Original title: ""Buy the currency circle"! Gamble to win the richest man, but lose to zero? "

Original author: Xu Chao, Wall Street Insights

playing " After the "Currency Circle Central Mother", the next move of FTX co-founder Sam Bankman Fried (SBF) has become the focus of attention in the currency circle. Some commentators believe that SBF's expansion against the market is very likely to help FTX win the entire digital currency derivatives market.

Currency Circle "Yang Ma "

In July this year, the global cryptocurrency exchange giant FTX and the encrypted digital currency lender BlockFi Agreement signed worth up to $680 million, FTX gets $240 million The option to acquire BlockFi at a price of US$ and will give BlockFi a line of credit of approximately US$400 million.

Cryptocurrency billionaire and FTX co-founder SBF also said he is open to acquisitions in the soon-to-be-battered cryptocurrency mining industry.

Some media commented that SBF is acting as the lender of last resort in the currency circle to help the currency circle institutions that have experienced the Lehman-style crisis "take a breath". Some people have therefore given him the title of "Currency Circle Central Mother", and some people have compared SBF's actions with John Pierpont Morgan (John Pierpoint Morgan) funding to put out the fire in the banking crisis.

SBF is pretty cool about it. In an interview with Forbes magazine, it believes that more cryptocurrency exchanges are about to go bankrupt: "Some companies have basically gone too far, because of major holes in the balance sheet, regulatory problems, or there is not much business to save, etc. It is unrealistic to provide support for them. Some third-tier exchanges have secretly gone bankrupt.”

Digital Currency Arbitrage Nuggets

When Bitcoin skyrocketed from $2,500 to nearly $20,000 in 6 months in 2017, 25-year-old SBF sensed a hidden opportunity. So he quit his high-paying job on Wall Street, founded Alameda Research, an encrypted quantitative trading company, and started a life of profit-seeking in the currency circle.

As for the reasons for entering the digital currency market, SBF is also blunt: "When I entered the field of cryptocurrency, I had no idea what cryptocurrency is. I know. I just feel like there are a lot of good deal opportunities out there.”

In an interview with the media, SBF said that its first pot of gold came from bitcoin arbitrage in the US and Japan markets.

As the entire digital currency market has just started, market pricing is chaotic and there are many arbitrage opportunities. As a result, SBF was once able to buy 1 bitcoin in the United States, and then sell it at a 10% price increase in Japan, and the price difference in South Korea was even as high as 30%. SBF then flew to Japan with his partners to conduct digital currency arbitrage transactions, and at its peak, it could earn as much as 25 million US dollars a day.

SBF then transferred to Hong Kong at the end of 2018 and established FTX in May of the following year.

Different from Coinbase and others for beginners to buy and sell crypto FTX is known for providing complex derivatives, similar to products sold by investment banks, including futures, options, volatility indices, leveraged tokens, and more. According to SBF, the most engaged and well-funded traders can use such products to short cryptocurrencies and profit when the market falls.

FTX also provides so-called "tokenized stocks", which issue tokens that track the stock performance of market companies, including Tesla (Tesla), Apple (Apple) , GameStop, etc., as a warrant, it is convenient for investors to trade 24 hours a day, and even buy Pre-IPO contracts in the same way to invest in the stocks of unlisted companies.

Under the tide of digital currency, FTX has developed from a small cryptocurrency exchange to a leading company in the encryption industry in just a few years. Daily transaction volume has climbed from $50 million in 2019 to $2 billion currently.

In addition to innovative products, low transaction fees and a large number of currency options on its platform, gaining market share through acquisitions is also a strategy FTX has always adopted.

In August 2021, FTX's US subsidiary, FTX.US, acquired New York-based LedgerX. LedgerX has a US Commodity Futures Trading Commission (CFTC) license to sell encrypted derivatives, which means that FTX has entered the US encrypted derivatives contract market ahead of its peers such as Binance, Coinbase, and Kraken.

FTX subsequently announced in September 2021 that it would relocate its headquarters from Hong Kong to Nassau, the capital of the Bahamas. According to SBF, FTX is still seeking opportunities to acquire U.S. securities brokerages in order to provide stock trading services to U.S. clients. This means that FTX is preparing to more directly cooperate with emerging online brokerages such as Robinhood direct competition.

"He may win the entire digital currency derivatives market"

Just like JPMorgan Chase in the 1907 stock market crash and crash, the outside world believes that SBF is using the chaos in the cryptocurrency market to expand his empire. It recently completed the acquisition of struggling Japanese exchange Liquid. BlockFi and Voyager Digital are also under his control.

But not every transaction can be successful. According to SBF himself, the Alameda companies he controls could lose at least $70 million in credit already extended.

However, SBF also emphasized that FTX has been profitable for the past 10 quarters. FTX's biggest competitor, Coinbase, lost $432 million in the first quarter of 2022, with its stock down nearly 90% from its all-time high.

Continued acquisition of SBF , Chris McCann, a partner of Race Capital, an early investor investment company in FTX, commented that SBF is very likely to win the entire digital currency market: "We don't know how big this thing will become. The final result may surprise us.   ; we think he has a good chance of winning the whole derivatives market. I don’t know if he’s going to win the whole crypto market, maybe even beyond that, because he’s even starting to get into stocks and financials in general now".

McCann believes that, unlike competitors such as Coinbase and Binance, FTX has always been very restrained in the number of employees. Just 300 people: "The sad reality is - the more people you hire, the less effective you are;  Employee costs are usually the largest expense for the average company".

As cryptocurrency prices remain low, Celsius, Three Arrows and BlockFi have sparked Investor anxiety is high amid fears of a liquidity crisis. But the worst of times are often the best of times for venture capital, says McCann:

It's not the first time, nor is it the worst. But the present is a scarier, more bleak time.  It's more of a macroeconomic situation right now that has been pulling down all asset classes, not just cryptocurrencies.

It is more likely that it is difficult to protect yourself

However, some pessimists believe that it is difficult for SBF to fill the currency circle" Bottomless Pit".

Although SBF has strong funds, his wealth is almost entirely related to cryptocurrency. In the process of the thunderstorm in the currency circle, his own fate is also at stake.

Furthermore, while FTX's $1 billion in annual revenue is heavily weighted in the cryptocurrency space, the exchange is far more vulnerable in terms of credit and counterparty risk Nothing like a regulated Wall Street firm.

This also means that it is difficult for SBF's actions to gain wide recognition and boost market confidence like traditional central banks.

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