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In January 2022, Sam Bankman-Fried was at his best. His Bahamian company FTX just raised $400 million from high-profile venture capitalists at a $32 billion valuation. A few weeks later, when Forbes published its annual list of the world’s billionaires, SBF, as he is known, became the second richest person in the world of cryptocurrencies with a net worth of $24 billion.
Now Bankman-Freed is likely bankrupt and awaiting trial. Before he was arrested in the Bahamas, the SBF told several media outlets that he had $100,000 left in his bank account and that he was “unsure” how he would pay his lawyers. Gary Wang, another co-founder of FTX and the company’s former chief technology officer who entered into a plea agreement with the Securities and Exchange Commission, also saw his once-estimated $5.9 billion fortune go to waste.
The demise of FTX was a fitting end to a year of wealth destruction in the crypto and blockchain sectors. The post-pandemic economic shock that caused inflation and rising interest rates was draining capital from the speculative crypto ecosystem. Notable companies have failed, from the collapse of the $40 billion algorithmic stablecoin TerraUSD in May, the crypto hedge fund Three Arrows (which filed for bankruptcy in July), to the bankruptcies of interest-bearing loan companies Voyager Digital, Celsius and BlockFi. Bitcoin, the largest cryptocurrency and industry indicator, has fallen 65% from a peak of $69,000 in November 2021. Meanwhile, about $2 trillion of digital asset market value has gone to safer pastures.
As a result, the 17 richest investors and founders of cryptocurrencies have lost a combined $116 billion in personal wealth since March, according to Forbes. Fifteen of them have lost more than half their fortune in the past nine months. Ten have completely lost their billionaire status.
“We are now at a tipping point in the evolution of cryptocurrencies where everyone is going to have to take a break and say, ‘OK, we have seen a ton of economic wealth destroyed in the last couple of months, we need to start taking this seriously,’” says Matt Cohen, founder of the venture capital firm. Ripple Ventures: “A lot of blockchain technology and crypto companies have created solutions to problems that didn’t need to be solved, and I think we’re in for a hard reset right now.”
The main reason for the recent problems in the crypto industry was the collapse of Sam Bankman-Freed’s FTX crypto exchange.