Sam Bankman-Fried bought a 7.6% stake in May in Robinhood, a brokerage meant to attract Millennial investors who sought to invest in cryptocurrencies.
But Bankman-Fried, the founder of FTX, a popular cryptocurrency exchange, faced even larger hurdles that investors were not aware of.
Robinhood (HOOD) shares tumbled on Nov. 8, ending off $2.29, or 19%, at $9.74 a share as Binance, the crypto behemoth, said it would acquire FTX, which was once its rival due to a "liquidity crunch."
The terms of the deal were not disclosed. The pending deal surprised investors since Binance founder Changpeng Zhao and Bankman-Fried have fought for several months on social media, including a major clash this week.
“To protect users, we signed a non-binding LOI, intending to fully acquire FTX and help cover the liquidity crunch," Zhao said in a tweet. "We will be conducting a full DD in the coming days.”
The downfall of cryptocurrency exchange FTX on Nov. 8 could be a wakeup call for investors who expressed concern about the future valuation of the digital assets.
Venture capital firms made large investments into FTX in 2021 with Sequoia providing $420 million in a round that that boosted the exchange's valuation to $25 billion in October 2021. A consortium with Paradigm invested $400 million in January 2022, bringing the valuation to a massive $32 billion.
The first investor that funded FTX was Binance, the largest global crypto exchange, but the relationship between the two companies crumbled as FTX gained popularity and fans.
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Robinhood Faces More Woes
Even having a billionaire buy a stake in Robinhood has not helped the beleaguered brokerage.
Bankman-Fried's net worth is $15.6 billion as of Nov. 7, according to Bloomberg Billionaires Index. His fortune has only shrunk by $620 million since January.
While Robinhood has remained a popular app for traders who backed the revolt of amateur investors against Wall Street elites in early 2021, the company has faced disaster many times.
The brokerage's revenue, generated from transactions of digital assets and the competition, sunk when the value of the virtual assets fell, impacting the broader cryptocurrency market.
The summer was a challenging time for the company - - on June 15, the stock price fell as low as $7.05, a massive loss in market capitalization of over $9 billion compared to January.
The steep drop in valuation made Robinhood an ideal target for a takeover.
Rumors flew about whether Bankman-Fried would step in and save the company since he had bought a 7.6% stake only a month prior.
Bankman-Fried, or SBF as he is nicknamed in the crypto industry, seemed like a good choice since he had already bailed out various cash-strapped firms.
"This [Robinhood] was something that I saw as an attractive investment, and there are a lot of areas for the company to grow and innovate going forward," Bankman-Fried said at the time.
As Bankman-Fried faces an unknown future since Binance plans to start conducting due diligence on the impending deal, Robinhood will likely have to appeal to a new investor who is willing to take on the risk as the broader crypto market faced losses on Tuesday.
Bitcoin, which has the largest market capitalization, fell by 4.6% on Tuesday and 10% within the past 24 hours while ethereum, which has the second largest crypto value, declined by 7.3% today and 14.% during the past 24 hours, according to CoinGecko.
