November 10, 2022 - 1:00pm

It was only five months ago that Sam Bankman-Fried, CEO of FTX, then the world’s largest and most celebrated cryptocurrency exchange, became the saviour of the crypto ecosystem. Acting as what’s known in traditional finance as the lender of last resort, the derivatives whizkid provided emergency loans to many struggling crypto entities that had succumbed to the early 2022 crunch on the industry. From then on, he became known as the JP Morgan of the crypto world.

But things change quickly in crypto. Last week everything still seemed normal. Advertisements showing the FTX motto of “You in?” filled billboards across the world, while the company had apparently acquired keys to its new offices in Miami.

Then, after rumours of FTX’s insolvency had been circulating for days, the crypto exchange halted withdrawals. This already came after a telltale sign of financial peril, that of a CEO taking to Twitter to deny whispers of insolvency with harsh undertones. “A competitor is trying to go after us with false rumours,” Bankman-Fried said in a now-deleted tweet. “FTX is fine. Assets are fine.”

He was responding to Changpeng Zhao — who goes by CZ — a noted personal rival of his and owner of Binance, one of FTX’s competitors. Catching wind of the deteriorating state of FTX and its parent company Alameda Research, CZ had not only started to unwind his company’s position in FTX’s signature FTT token but announced he was doing so in real-time on social media.

The market’s response was fairly moot, but this didn’t last long. CZ made a further surprise announcement that Bankman-Fried had asked him for what appeared to be a bailout. “To protect users, we signed a non-binding [letter of intent] … to fully acquire and help cover [an FTX] liquidity crunch,” CZ tweeted. “We will be conducting a full DD [due diligence] in the coming days.”

Given the shaky rivalry between the two CEOs, the chance of a deal remained small. Indeed, when an anonymous source tipped crypto media outlet CoinDesk that Binance was now “highly unlikely” to follow through on its rather tentative rescue of FTX after “seeing its books,” the downfall of SBF’s empire appeared to be guaranteed.

And it was. After helping to plunge his competitor’s major crypto token, CZ then pulled out of an FTX rescue.

Since then, Bankman-Fried has seen his net worth collapse from $26 billion to less than $1 billion and could face bankruptcy without help from investors. His investors have also felt the pain, with the likes of famous venture capital firm Sequoia Capital marking its FTX investment down to “zero”. American football star Tom Brady and his supermodel wife Gisele Bündchen, for instance, will likely see their multi-million dollar equity investment become worthless.

But as with every other crypto cycle, the most prominent entities like Mt. Gox and Silk Road always come crashing down. The ongoing downfall of Bankman-Fried and FTX is not surprising. Nor is it anything new.

That leads us to ask: who bails out CZ when he inevitably makes the same mistakes as his rivals? Without the support of a real lender of last resort or regulatory framework, Binance and CZ will eventually face a rather predictable destiny.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at@concodanomics.