• By 2018 Spring, the trading firm’s losses had reached 65 percent of its assets, and it was left with $30 million worth of assets, per a WSJ report.
• Bankman-Fried’s grace to grass story is one of the most spectacular falls in the history of crypto disasters.

A new Wall Street Journal (WSJ) report has claimed that FTX’s troubles before its eventual collapse have been brewing for the last couple of years. The report further claimed that even though Sam Bankman-Fried built its reputation off its trading company, Alameda Research, Alameda’s investment prowess was lower than the company made many believe. Alameda’s first “investment success” was being a BTC arbitrageur.

The company was buying BTC at lower prices and selling in Japan, where the digital asset’s price was higher than everywhere else. According to the report, Alameda made up to $30 million in profits from this price disparity before the arbitrage technique dried up four years ago. Alameda couldn’t continue with its arbitrage business due to the rising cost of transactions (which were often complex) and a massive reduction in profits.

Recording huge losses

The WSJ report added that the company’s trading bot made wrong price predictions throughout this period, causing Alameda to lose lots of money. Also, Alameda recorded huge losses following its investments in the ripple payment network. Consequently, by 2018 spring, the trading firm’s losses had reached 65 percent of its assets, leaving it with $30 million worth of assets.

However, the crypto bull market in 2021 came good for Alameda as it pulled in $1 billion in profits that year. Before declaring bankruptcy in November 2021, the trading firm invested in various crypto firms, notably bitcoin mining firms. Some of its notable investments in bitcoin mining firms include $1 billion in us-based genesis digital assets and $100 million in another bitcoin mining firm based in Kazakhstan.

In 2021, Alameda spent $1.4 billion in investments, a considerable contrast to the $10.5 million it spent on crypto startups in 2020. However, the WSJ report further claimed that last year’s crypto winter put the trading firm at a crossroads with its lenders, who sought a refund of their investments. Hence, these lenders alleged that Bankman-Fried used FTX customer funds to solve Alameda’s financial woes.

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Consequently, Bankman-Fried’s crypto exchange and the trading firm filed for bankruptcy last November. Even though the FTX founder pleaded not guilty to allegations of crimes and fraud during a hearing on January 3, 2023, the ruling Judge in the Manhattan district court (Lewis Kaplan) set October 2 as the trial date.

A jaw-dropping crypto disaster

Bankman-Fried’s grace to grass story is one of the most spectacular falls in the history of crypto disasters. The massive difference between perception and reality means Bankman-Fried’s reputation has been shattered to pieces completely. After resigning from his CEO position at FTX following the exchange’s bankruptcy filing, Bankman-Fried fled to the Bahamas. But he was apprehended there and subsequently extradited to the United States.

Since his arrest and investigation by the US Justice Department into the FTX collapse, many of Bankman-Fried’s cronies and enthusiasts have started maintaining their distance. Widely acclaimed as the crypto king, Bankman-Fried’s reputational damage is so massive that he may never recover from it.