Crypto
How did Sam Bankman-Fried attract investors? Well, Fomo probably helped | John Naughton
On 22 September last year, a fascinating article appeared on the website of Sequoia Capital, one of the leading venture capital firms in Silicon Valley. (It trades under the motto: “We help the daring build legendary companies.”) The article in question was a breezily readable piece about a tech wunderkind who had recently flashed on to the company’s radar screen. His name was Sam Bankman-Fried (henceforth known as SBF) and he was the founder of Alameda Research, a hedge fund specialising in cryptocurrency, and FTX, a spectacularly growing and profitable exchange that enabled holders of crypto assets to trade efficiently and freely.
Today, that glowing tribute to this young genius is nowhere to be found on Sequoia’s website. Why? Because only the other day a New York jury convicted him of fraud and conspiracy to launder money in a crushing verdict that could keep the lad in prison for decades – and perhaps also whet the appetite of US authorities for bringing the crypto sector to heel. In the end, about $8bn of FTX’s investors’ money was missing. The verdict has also mightily embarrassed the top-tier venture capitalists who were mesmerised by SBF’s ambitious fantasies – to the point where the lead sucker, Sequoia, felt obliged on 10 November to bury the online evidence of its delusions by removing the profile from its website.
Fortunately, the internet has a very good memory in the shape of the Wayback Machine, which had thoughtfully archived Sequoia’s glowing testimonial for SBF for our delectation. And, boy, does it make for delightful reading.
What it reveals is that Sequoia was slow to catch up with SBF, but when it did it fell heavily for his shtick. He had originally started by creating a hedge fund – Alameda Research – which was making money from crypto arbitrage, ie the different prices at which cryptocurrencies were sold in different jurisdictions. But because trading cryptocurrencies across frontiers was a hassle-intensive business, SBF had the idea of creating a crypto exchange, FTX, that would make such trading seamless. And from the word go, it boomed. The Sequoia people had looked at crypto exchanges but concluded that all of them had “regulatory issues”. FTX, though, was “Goldilocks-perfect. There was no concerted effort to skirt the law, no Zuckerbergian diktat demanding that things be broken. And, yet, FTX wasn’t waiting to get permission to innovate. The company had based itself offshore precisely because it aspired to build an advanced risk engine that would support all sorts of hedging strategies. SBF himself seemed to be bred for the role of crypto exchange founder and CEO. Not only had he been a top trader at a top firm – and, thus, the ideal customer – but both his parents were lawyers.”
So the researchers organised a Zoom call between SBF and some of Sequoia’s senior partners. Apparently, it went like a bomb. “SBF looked relaxed as he answered questions, talking, as he usually does, in complete paragraphs about topics of extreme complexity. Ramnik Arora, FTX’s head of product and another ex-Facebook engineer, remembers the meeting clearly: ‘We’re getting all these questions from Sequoia toward the end. He’s absolutely fantastic.’” So they asked SBF for his “long-term vision for FTX”.
His vision was for “FTX to be a place where you can do anything you want with your next dollar. You can buy bitcoin. You can send money in whatever currency to any friend anywhere in the world. You can buy a banana. You can do anything you want with your money from inside FTX.”
At which point, the transcript of the Zoom chat function revealed that the eminent Sequoia partners went bananas. “‘I LOVE THIS FOUNDER,’ typed one. ‘I am a 10 out of 10,’ pinged another. ‘YES!!!’ exclaimed a third.” After that, it seems to have been only a formality for Sequoia to invest more than $200m in FTX, an investment that the company has now written down to $0.
So how did Sequoia fall for it? Fomo (fear of missing out) is part of the explanation. As tech commentator Om Malik puts it: “When you have deal fever and a severe case of Fomo, you choose to believe anything that helps you convince yourself to do the deal.” Venture capital, the financial engine that drives Silicon Valley, is chronically vulnerable to outbreaks of the disease. In The New New Thing, Michael Lewis’s book about the first internet boom, he tells of a venture capitalist who killed himself after Jim Clark, the founder of Netscape, refused to allow him to invest in the company.
In that context, Sequoia’s failure to invest in Facebook obviously rankled and may have led to wishful thinking. After SBF’s conviction, Alfred Lin, the guy who led the company’s investment into FTX, said that “the verdict confirmed that SBF misled and deceived so many, from customers and employees to business partners and investors, including myself and Sequoia”. FTX’s collapse “had prompted Sequoia to extensively review its due diligence process”. Translation: stable door securely locked… until next time.
What I’ve been reading
Twitter quitter
Tech writer Benedict Evans has been on Twitter since 2007. He’s written a blogpost explaining why he is leaving.
War on TikTok
An extraordinary blogpost by Scott Galloway on the widening gap between how western political establishments view the Israel-Hamas conflict and how young people see it.
Money makers
A marvellous essay by Sherry Turkle on the ideology of Silicon Valley.
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Donald Trump is making news once more, but this time it’s not for political reasons; it’s about cryptocurrency. As he prepares to return as the 47th President of the United States, Trump will become the first sitting president to own meme currencies, a decision that has stirred both enthusiasm and skepticism in the crypto community.
Trump: A Significant Crypto Portfolio
Recent sources claim that Trump’s crypto wallet consists largely of meme coins and is valued roughly $8 million. Among the assets are $1.5 million in a meme currency with Trump-themed design and $5.5 million in TROG tokens.
In addition, he has about 1.3 billion GUA coins, which amounts to nearly $400,000, and $167,000 in TRUMPIUS tokens. This is a first of its kind, where Trump becomes an oddity in the world of politics and cryptocurrency, considering his earlier reluctance towards digital assets.
DONALD J. TRUMP WILL BE THE FIRST SITTING US PRESIDENT TO HOLD MEMECOINS pic.twitter.com/ODlNXDaKIT
— Arkham (@arkham) January 10, 2025
From Skepticism To Support
Trump’s journey into the crypto world is notable. He had been a strong critic of Bitcoin and other cryptocurrencies, calling them scams. But that all changed in 2024 when he started publicly endorsing Bitcoin and speaking out for the right to own it. That’s a broader trend among politicians, who are increasingly recognizing the potential of cryptocurrencies and their growing popularity among voters.
Trump’s financial success in the digital sphere was also aided by his venture into non-fungible tokens (NFTs) on Ethereum. Trump reportedly made a good living from these endeavors, and he currently owns roughly 496.77 ETH, which is worth about $1.6 million.
Implications For Regulation
Many people are eager to see how Trump’s administration will regulate cryptocurrencies now that he is back in office. A possible change toward a more advantageous regulatory climate for digital assets is hinted at by the nomination of important individuals like David Sacks as “Crypto Czar” and Paul Atkins as SEC chair. This could result in more precise rules for investors and businesses involved in the cryptocurrency industry.
Donald Trump. Image: Ronda Churchill/Reuters
The policies by Trump are already changing market dynamics as everybody is anxiously awaiting them. During this time when Bitcoin hit a record high of $108k, while meme coins surged, analysts still feel that Trump could make the year 2025 a major turning point in cryptocurrencies.
Meme Coin Boom
The rise of Trump-owned meme coins is indicative of a broader cultural shift among younger investors who are fed up with established financial institutions. This combination of the political influence of Trump and the speculative nature of meme coins puts a scenario under which political events could significantly affect cryptocurrency markets. Thus, while the investors go about this, they are not ignorant of the volatility that is usually associated with meme coins.
Featured image from Fortanix, chart from TradingView
Scammers stole millions of dollars in cryptocurrency from remote job seekers in an elaborate scheme. New York Attorney General Letitia James has filed a lawsuit to recover over $2 million that she said was stolen from New Yorkers and others nationwide.
Scammers used unsolicited text messages to lure victims with promises of flexible, well-paying remote work opportunities. They claimed the job involved reviewing products online to generate market data. However, victims were told to open cryptocurrency accounts and maintain balances matching the price of products they were reviewing.
While victims believed they would receive their investments plus commissions, the funds were instead transferred into the scammers’ crypto wallets. The fake product reviews took place on a fraudulent website created as part of the scheme.
The lawsuit details seven people who were scammed. One victim, a New Yorker, lost over $100,000 while another victim from Florida lost over $300,000. These cases show the significant financial and emotional impact on the victims.
James’ office, working with Queens District Attorney Melinda Katz and her cryptocurrency unit, traced the stolen funds to specific digital wallets. Over $2 million in cryptocurrency has been frozen, ensuring it can be returned to victims.
“Deceiving individuals seeking remote work is cruel and unacceptable,” said James. “We’re committed to holding scammers accountable and recovering stolen funds.”
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