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November 9, 2022


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Liz Hoffman
Liz Hoffman

Today in Semafor Business, we go inside the unraveling of FTX, crypto’s victor-turned-villain. Plus a Q&A with the chief financial officer of Coinbase and one good text on the whole thing from former SEC Chair Jay Clayton.

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➚ Buy: FX. Foreign exchange traders saved Citi’s third-quarter trading revenues, and the surging dollar has macro hedge funds atop the industry this year.

➘ Sell: FTX. CEO Sam Bankman-Fried is trying to raise new money, but any potential investor will be getting billions in liabilities and a mountain of legal headaches.

⇌ Hold: FTC. The Supreme Court’s conservative majority is set to curtail the antitrust agency’s power – keep an eye on a challenge to its challenge of a merger of two police-equipment makers – but it’s getting a funding boost from Congress. The House approved a 30% bump while the Senate proposed a 14% bump. The final figure will likely land in between.

Semafor Stat

The Nasdaq’s gain midway through Thursday, putting the index on pace for its best day in years. With the collapse of FTX and ensuing crypto chaos, it appears investors are piling into a safe haven: tech stocks.

Liz Hoffman and Bradley Saacks

Crypto’s would-be hero plunges toward zero


A week ago, Sam Bankman-Fried seemed like crypto’s inevitable king. He was bailing out fallen rivals and advising members of Congress. FTX was feted by major Silicon Valley investors and slapped its name on sports stadiums.

FTX, which was one of the world’s biggest crypto exchanges, is now on the brink of insolvency, trying to plug a hole that people familiar with the matter put at between $8 billion and $10 billion. It is winding down an affiliated trading arm, Alameda Research, whose website disappeared from the internet on Wednesday.

Getty Images/Tom Williams

“I fucked up,” Bankman-Fried, who is an investor in Semafor, tweeted Thursday in his first public comments in days. “I should have done better.” He said he had badly miscalculated the risk in FTX’s business and was unprepared for a wave of customer withdrawals.

The unraveling began Sunday, with a shot fired on Twitter from a rival. Changpeng Zhao, the CEO of Binance, said his firm would sell its holdings of a token, called FTT, backed by Bankman-Fried’s firm. Zhao cited “recent revelations” about FTX, a nod to a story published a week earlier by CoinDesk that said Alameda was heavily invested in FTT and questioned its financial health.

Panicked investors tried to sell their tokens, and FTX didn’t have enough cash to redeem them. Bankman-Fried, a major donor to Democratic candidates, frantically scoured Wall Street and Silicon Valley billionaires for a $1 billion-plus lifeline, Semafor reported Tuesday. He ultimately agreed to sell to Binance, but even that tentative deal quickly fell apart.

Most of FTX’s legal and compliance teams, including its general counsel, quit before Binance could even roll up its sleeves. Binance backed out of the deal Wednesday, saying FTX’s “issues are beyond our control or ability to help.” Venture capital giant Sequoia wrote down its stake in FTX — which it had valued at $32 billion and just six weeks ago, in a blog post since removed from its website, predicted would eclipse JPMorgan Chase as finance’s big fish — to zero.

The seeds for the implosion were planted months ago. In June, Alameda lent $500 million to a troubled crypto firm, which soon went bankrupt. Reuters reported that Bankman-Fried transferred at least $4 billion from FTX to Alameda to cover those losses. At least some of that money belonged to FTX’s customers, who had bought FTT tokens with it, Reuters reported. That recalls the 2011 collapse of MF Global, which dipped into customer accounts to cover its own losses.


Crypto pioneers like Bankman-Fried claimed to be reinventing finance, achieving some kind of escape velocity from the system they disdained. They weren’t.

FTX fell headlong and seemingly fatally into the oldest and surest trap in finance: It borrowed short and lent long. Its depositors had the right to ask for their money back at any point by selling their tokens.

Ignore innovations like tokens and wallets; what followed was a classic run on the bank. It’s the same thing that took down Lehman Brothers, Bear Stearns, and Washington Mutual in 2008, Long Term Capital Management in 1998, and thousands of stockbrokers in 1929. In each case, someone (trading clients, depositors, investors) had given those institutions money and those institutions had turned around and committed that money to long-term, risky, often illiquid assets.

That process is fine. It’s how the financial system works. It’s the reason it exists. Banks and brokerages and all the other middlemen turn short-term, safe things like bank deposits into long-term, risky things like mortgages or yacht loans or Italian bond swaps. They do that by taking some risk: Banks assume all of their depositors won’t ask for their money back at the same time.

The keys are managing and disclosing that risk. Banks keep a lot of their assets in cash and cash-like investments like Treasury bonds, while hedge funds and private-equity funds lock up their investors’ money for months or years at a time. FTX did neither, and the lack of disclosure across crypto firms like it make it impossible for investors to make informed decisions.

This should, and almost certainly will, light a fire under Washington regulators, which have mostly left crypto alone. A good and easy first step would be requiring all firms over a certain size to disclose their assets. Let investors know which tokens are backed by safe things like cash and Treasury bonds and which ones are vapor. The market will price in that risk and self-correct.


Applying old-world regulations to new-world technology may kill it in its crib. In an interview with Semafor, Coinbase’s CFO, Alesia Haas, said that rules were crucial but cautioned against a copy-and-paste approach. She speaks from experience: Haas joined Coinbase after a career at OneWest, the successor to IndyMac, which was one of the largest bank failures in U.S. history when it went belly-up in 2008.

“We agree that we need to have disclosures. We agree that we need to have reporting,” she said. “But we may not need to have a physical, wet signature when you transfer a security token from party A to party B.”

“The challenge is that physical signature is enshrined in law right now,” she added. “So how do we bring those laws forward to a digital age?” (Keep reading for the full Q&A.)


  • The financial system survived 2008 in large part because big players like JPMorgan, which bought Bear Stearns and WaMu in shotgun weddings, were strong enough to step in and save them. Jamie Dimon famously regrets doing so, but it worked. The problem in crypto, the bank’s analysts wrote this week, is that “the number of entities with stronger balance sheets able to rescue [weaker ones] is shrinking within the crypto ecosystem.”

One Good Text with... Jay Clayton

  • Andreas Halvorsen’s $60 billion Viking Global was up 1.1% last month, a person familiar with the fund told Semafor. This brings the stock-picking manager to -4.6% for the year — significantly outpacing rivals like Tiger Global and D1 Capital Partners. — Bradley

Alesia Haas, CFO of crypto exchange Coinbase

Haas, a veteran of the financial industry, discusses what the FTX meltdown means for the industry and for her company.

Semafor: Is this a crisis of confidence or even an existential threat?

Haas: This is a big bump in the road, but it is just a bump in the road. This technology is going to continue to be broadly adopted and you’re seeing such great organic use cases away from speculative trading. The industry survived Mt. Gox, the industry survived five or six crypto winters. Every time, you see it bounce back. This is going to be a very hard day for a lot of customers, but I do not believe this is going to be a long term impact to the ecosystem. I think this also underscores the importance of regulatory clarity.

Semafor: Is there an off-the-shelf framework that you think makes sense here? Should it borrow from bank [regulation], with some combination of capital and leverage and liquidity requirements?

Haas: There are a lot of lessons to learn from traditional financial regulation. This is where it’s so important to get nuanced here. It’s not just copy, paste. It’s not a broad brush, but disclosures, transparency, reporting requirements around these capital requirements. These are all great lessons that we can then align on first principles with regulators.

Semafor: Absent any big moves from Congress or regulators, is there anything more that Coinbase wants to do in light of what’s happened with FTX?

Haas: The [regulatory] uncertainty in the U.S. is moving trading volume offshore. It’s causing us to rethink our strategies. Our goal is to be a global company, our goal is to bring a billion people into crypto, and we need to do that, and be compliant with rules around the world and find a place to serve our customers outside the U.S. as well. This could be an opportunity for us to gain international market share, as we see that shifting landscape evolve.

Semafor: Not only did you come from the traditional banking world, but from a bank [OneWest] that had very recent experience with how badly this stuff can go. Has that stayed with you?

Haas: I hired my whole team from people I consider war-torn veterans. They understand what gave rise to the risks of the past. How do we look around corners? How do we build better controls? From the dot-com bubble and then the 2008 financial crisis, we learned how to manage liquidity, how to manage risk. We’re applying those lessons here now in crypto.


Today’s the deadline for investors to convert their U.S.-listed proxy shares of Russian companies into shares on Moscow’s exchange. It’s part of Vladimir Putin’s efforts to keep raising foreign currencies and force some continuing financial ties with the West, but clients of banks like Citi and BNY Mellon were struggling with the process last month.


“Prison is not that bad,” Martin Shkreli, the pharma executive who served four years in prison for securities fraud, told Do Kwon on a YouTube livestream. Kwon, the wanted founder of failed cryptocurrency ventures TerraUSD and LUNA, maintains he’s not on the run while keeping the cops guessing about his whereabouts.

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See you Tuesday.

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— Liz and Bradley