Sam Bankman-Fried and Changpeng Zhao are two young billionaires.
Their respective fortunes are linked to their investments in the young crypto industry that wants to completely disrupt the financial services sector.
Bankman-Fried is worth $15.6 billion as of Nov. 7, according to Bloomberg Billionaires Index. Zhao is worth $18.3 billion, after a $77.5 billion drop in his fortune since January. Bankman-Fried's fortune has only shrunk by $620 million since January.
Sign of their influence in the crypto sphere: they are known by their initials. CZ for Zhao and SBF for Bankman-Fried. They are at the head of two behemoths: Binance, the company co-founded by CZ, is the largest cryptocurrency and digital asset exchange in the world in terms of trading volumes. FTX.com, another major cryptocurrency trading platform, is owned by SBF.
Neither Binance nor FTX.com are public so it is difficult to know their valuation. But the valuation of BNB, the native token of the Binance ecosystem, gives an idea of the potential valuation of Binance. BNB currently has a market value of $53 billion, according to data firm CoinGecko.
White Knights
Last summer, the two young billionaires emerged as white knights for crypto firms that were cash-strapped due to the credit crunch caused by the collapse of sister cryptocurrencies Luna and UST or TerraUSD.
"I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion," SBF told NPR.
The young billionaire bailed out fintech BlockFi by providing it with a $400 million revolving credit facility. The deal also gave SBF the option to buy the company.
More recently, Bankman-Fried concluded a deal with Anthony Scaramucci, who was ever-so-briefly White House director of communications under former president Donald Trump. FTX Ventures will acquire 30% of Skybridge Capital, the alternative investment company founded by Scaramucci, aka "The Mooch."
SBF and CZ have been at the center of a clash for a few days now, which is shaking the cryptocurrency market and awakening fears of a new credit crunch like in the summer.
It all started on Nov. 6 with a thunderclap announcement from CZ. In a post on Twitter, he announced that Binance had made the decision to sell $530 million worth of FTT coins. Binance had received its coins when the firm sold its stake in FTX in 2021. In his announcement, Zhao added that the decision to liquidate FTT coins was due to recent revelations but he did not say which ones.
"As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books," Zhao posted on Nov. 6.
He continued: "We will try to do so in a way that minimizes market impact. Due to market conditions and limited liquidity, we expect this will take a few months to complete."
"Binance always encourages collaboration between industry players. Regarding any speculation as to whether this is a move against a competitor, it is not. Our industry is in it’s nascency and every time a project publicly fails it hurts every user and every platform."
He concluded that: "We typically hold tokens for the long term. And we have held on to this token for this long. We stay transparent with our actions."
Liquidity Issues?
In a Nov. 2 article, Coindesk claimed that most of the balance sheet from Alameda Research, Bankman-Fried's trading platform, is comprised of the FTT token. The leaked balance sheet shows that Alameda, which is FTX's sister trading firm, listed $3.66 billion in unlocked FTT and $2.16 billion worth of FTT collateral. It also shows a total of $14.6 billion in assets and some $8 billion in liabilities, which includes $7.4 billion worth of loans.
But Alameda CEO Caroline Ellison responded to the leak by saying it was not complete. Ellison also offered to buy Binance's FTT holdings for $22 per unit. FTT currently trades at $14.
"A few notes on the balance sheet info that has been circulating recently:- that specific balance sheet is for a subset of our corporate entities, we have > $10b of assets that aren’t reflected there," Ellison said. "- the balance sheet breaks out a few of our biggest long positions; we obviously have hedges that aren’t listed- given the tightening in the crypto credit space this year we’ve returned most of our loans by now."
Bankman-Fried also responded, saying that the financial situation of FTX and its subsidiaries was good and that there were no liquidity problems.
"A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine," he said on Nov. 7. " FTX has enough to cover all client holdings. We don't invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be."
The problem is that all this drama has sown doubt, rekindling panic. FTX thus saw a net outflow of $653 million in 24 hours according to the firm Nansen. The FTT token has a currency share of more than 30%.
The drama also plunged the cryptocurrency market in general, bitcoin (BTC) and ether (ETH), the two main cryptocurrencies losing more than 5% respectively in 24 hours.
Tensions between Binance and FTX or between CZ and SBF escalated after Bankman-Fried unilaterally proposed rules last month to frame platforms facilitating trading on decentralized exchanges. His proposals had been heavily criticized by other players in the industry.
