I’m sure you’ve all heard about random college students and young adults turning
a couple hundred or thousand dollars into hundreds of thousand or even millions by investing
into momentum cryptos.
There was even some guy who turned $8000 into $5.7 billion by investing into Shiba Inu.
If you’ve made life changing amounts of money with these altcoins congratulations,
that’s really quite awesome.
But, there’s someone who’s making a lot more than all of these guys while taking on
far less risk, and that’s of course the crypto brokerages.
You know what they say, when there’s a gold rush, you don’t wanna be digging for gold,
you wanna be selling the shovels, and that’s exactly what Sam Bankman did.
In May of 2019, Sam launched his crypto trading platform FTX, and now he’s worth $26.5 billion.
And did I mention that he's only 29 years old.
Forbes claims that Sam is actually the richest person in crypto.
Satoshi Nakamoto is of course richer, but if we just look at known figures, Forbes is
probably right.
So, here’s the story of Sam Bankman, and how he became the richest known crypto figure.
Taking a look back, Sam was born on March 6, 1992 in Stanford, California.
Both of his parents were law professors at Stanford, so I think it’s safe to assume
that Sam had a well off childhood.
He spent a lot of his free time reading Harry Potter and watching the San Francisco giants.
As for school, he attended a small private school in the bay before scoring a spot at
MIT where he majored in physics.
Physics is one of the hardest majors to complete if not the hardest, and Sam was doing it at
MIT, so you would think that college consumed all of his time.
But, Sam says that he was able to half ass his way through it.
Apparently, he spent most of his time playing video games including Starcraft and League
of Legends as opposed to studying.
So, we’re probably looking at a child prodigy.
Initially, Sam was looking to become a physics professor similar to his parents, but as he
developed a strong interest in ethics and morality, he slowly strayed away from this
path.
Sam was especially interested in effective altruism and utilitarianism.
Instead of donating money to trendy causes, Sam believes that one should donate money
to causes that will objectively do the most good.
For example, causes that save the most amount of lives or create the most amount of income
per dollar donated.
In order to make such an impact though, Sam knew that he needed big money and he simply
wasn’t going to get there by being a professor.
So, instead of pursuing higher level degrees, Sam took on a lucrative finance job at a quantitative
firm called Jane Street Capital.
Unlike other crypto billionaires, Sam never really cared about crypto and he wasn't an
early adopter by any means.
In fact, crypto didn’t catch his attention till 2017 when Bitcoin was running from a
few thousand dollars to $20 thousand.
Even then, he didn’t really care about the fundamentals of Bitcoin or what it stood for.
He wasn’t interested in Bitcoin’s promise of being an inflation hedge or it’s decentralized
nature.
What he was interested in though was Bitcoin’s inefficient markets.
One day, Sam noticed that you could buy bitcoin in the US and sell it on secondary markets
for a substantially larger amount.
And that’s how it all started.
Sam says quote, “I got involved in crypto without any idea what crypto was.
It just seemed like there was a lot of good trading to do.”
Something else that attracted Sam to crypto was the lack of regulation.
Opening up a traditional trading firm requires a lot of licenses and help from lawyers which
is not cheap.
But, with crypto, basically anyone could open a trading firm especially if it wasn’t based
in the US.
Sam wasn’t the only one trying to leverage this opportunity though.
Exploiting this price difference to make profits is actually an established form of trading
called arbitrage trading.
Anyway, Sam would end up quitting his job and he would start an arbitrage crypto trading
firm called Alameda research in October of 2017.
Initially, it was just him and a couple of recent college graduates, but despite the
rookie nature of their startup, it didn’t take long for them to raise a lot of money.
Given Sam’s experience working on Wall Street, he was able to brand himself as the wall street
professional that was offering crypto trading services.
Combine this with the fact that the rest of wall street didn’t want to associate with
crypto at least not publicly, and the extreme fomo associated with the 2017 bull run, and
Sam was able to raise millions within a few months.
By January of 2018, Sam was trading $25 million worth of Bitcoin per day, but this was the
peak of the Bitcoin bull run and things only went downhill from there.
Sam wasn’t worried about the hype dying off though as he had sensed a much larger
opportunity.
As he was trading millions of dollars per day, he noticed that existing crypto brokerages
were trash when it came to trading.
The popular crypto brokerages like Coinbase had spent all of their effort on making crypto
purchases as seamless as possible for individual investors.
And while they were phenomenal at this, they weren’t very good at handling high speed
trade volume from traders.
So, Sam decided to create his own crypto brokerage that would be tailored towards crypto traders.
Over the next several months, Sam became more involved with the crypto community by attending
various crypto conferences and meeting with various crypto investors and traders from
around the world.
After attending a crypto conference in Macau China, Sam would actually choose to move to
Hong Kong, and this is where he would launch FTX.
Sam took profits from Alameda and worked with a couple of venture capital firms to raise
a total of $8 million which he would use to develop FTX throughout the beginning of 2019.
With $8 million and all of his experience, Sam was able to develop the perfect platform
for traders, and he eagerly launched FTX in May of 2019.
But to Sam’s disappointment the launch of FTX was nothing like the launch of Alameda.
Alameda was launched during the peak of the bull run when many investors were desperate
to get into crypto.
But by may of 2019, Bitcoin had crashed 80%, Ethereum had crashed 94% and there was little
to no hype left.
It was basically just the hodlers and bag holders left and these guys had no interest
in trading.
Sam even hired a dozen salesmen to stand around at WeWork locations to try to convince traders
to give FTX a shot, but still no one was interested.
So, Sam started to think outside of the box.
Bitcoin no longer had hype, so he couldn’t rely on momentum traders who rode the wave
up and down.
But, something that Bitcoin still very much had was volatility.
So, Sam decided to lean in on the volatility by introducing crypto derivatives.
If you’re not familiar with derivatives, it’s basically just leveraged trading through
the use of options, futures, and margin.
Now, I cannot understate how dangerous these are.
Trading derivatives on stocks itself is super dangerous.
And you could argue that crypto itself is more dangerous than stock derivatives.
So, when you're trading derivatives on crypto, you’re basically trading derivatives of
derivatives.
To make things even worse, there’s very little regulation in crypto trading, so the
leverage you can take is sky high.
On stocks, you’d be hard pressed to find 1x leverage without using options.
Meanwhile, FTX offers up to 20x leverage.
This means that with $10,000 in cash, you can control $200,000 worth of Bitcoin.
If Bitcoin rises just 5% you double your money, but the thing that people forget is that if
bitcoin just drops 5%, you lose everything.
I don’t think I need to explain why this is extremely dangerous.
Ideally, Sam was looking to attract professional traders who knew the risk and had experience
with leverage.
But naturally, he ended up attracting a large number of retail gamblers looking for a moonshot
opportunity.
Nonetheless, this was extremely lucrative.
By May of 2020, FTX had grown to 200,000 users with daily trading volume of $1 billion.
And since then, things have just gone to the moon.
As of October, FTX boasted a total of 2 million users with daily trading volume of $11.5 billion.
Now, to put that in perspective, Coinbase has 68 million users or 34 times FTX.
Yet, they only average about $5 billion per day in volume which works out to about $74
per person per day.
Meanwhile, FTX averages $5,750 per day per person.
Now, FTX only charges a fee of 0.005% to 0.07% per transaction, but with $11.5 billion per
day, we’re talking about somewhere between half a million per day to 8 million per day.
If we estimate in the middle and call it $4 million, we’re looking at about $1.5 billion
in revenue per year.
And given that the business has very little overhead, Forbes estimates that their profit
margin is about 50%.
Aside from crypto derivatives, FTX has also introduced tokens of popular stocks like Apple.
This allows investors from underprivileged areas to safely participate in the American
stock market.
FTX also introduced their own token which now accounts for a large part of Sam’s wealth.
Given all of this exposure to crypto, you would think that Sam is a massive believer
in crypto, but this is actually not the case.
Now, it’s not like Sam is calling for Bitcoin to go to 0, but he’s also not calling for
it to go to the moon.
He didn’t enter the crypto markets based on conviction, he entered based on opportunity
and that’s the only reason he’s still there.
At this point, he’s just hoping that crypto survives long enough for him to give away
his wealth as the only thing Sam has conviction in is giving away all his money.
If that’s through crypto and FTX, great, but if crypto goes down and something else
emerges, he’s just as fine with switching to that instead.
Right now, he’s reinvesting all of his profits back into the business given that the company
is only 2.5 years old.
But even through that, he’s managed to donate $25 million.
Sam hopes that by riding out the crypto wave and holding off to sell, he can donate over
900 times that or about $22.5 billion.
Now, I don’t want to take away from his generosity, but I do think it should be noted
that Sam’s donations so far haven’t necessarily been as altruistic as he originally proposed.
Last year, Sam donated $5.2 million to Joe Biden’s campaign which made him the second
largest individual donor only beaten out by Michael Bloomberg.
And I think we can all agree that political donations are some of the least effective
donations when it comes to altruistic motives.
So, hopefully, Sam does eventually focus on the altruistic avenues that he originally
described, but only time will tell.
In the meantime, that’s how Sam Bankman went from 0 to $26.5 billion in just four
years.
Do you guys believe that Sam will actually follow through and donate all his money.
And if so, do you think his donations will actually be as altruistic as he describes?
Comment that down below.
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