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In January 2022, Sam Bankman-Fried was at his best. His Bahamian firm FTX just raised $400 million from high-profile venture capitalists at a $32 billion valuation. A few weeks later, when Forbes released its annual list of the world’s billionaires, SBF famously became the second richest person in the world in crypto with a net worth of $24 billion.
Now Bankman-Freed is probably 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 “not sure” how he was going to pay his lawyers. Gary Wang, another FTX co-founder and former chief technology officer of the company who entered into a plea deal with the Securities and Exchange Commission, also saw his $5.9 billion fortune go to waste.
The demise of FTX was a fitting conclusion to a year of wealth destruction in the cryptocurrency and blockchain industries. The post-pandemic economic shock that caused inflation and soaring interest rates was draining the capital out of the speculative cryptocurrency ecosystem. Major companies have failed, from the collapse of the $40 billion algorithmic stablecoin TerraUSD in May, cryptocurrency hedge fund Three Arrows (which filed for bankruptcy in July), to the bankruptcies of interest-bearing loan firms Voyager Digital, Celsius and BlockFi. Bitcoin, the largest cryptocurrency and industry indicator, is down 65% from a peak of $69,000 in November 2021. Meanwhile, an estimated $2 trillion of the market value of digital assets has gone to safer pastures.
As a result, the 17 richest cryptocurrency investors and founders have lost a total of $116 billion in personal wealth since March, according to Forbes. Fifteen of them have lost more than half of their fortune in the past nine months. Ten have completely lost their billionaire status.
“We’re now at a tipping point in the evolution of cryptocurrencies where everyone is going to have to pause and say, ‘OK, we’ve 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: “Many blockchain technology and cryptocurrency companies have created solutions to problems that didn’t need solving, and I think we’re ready for a hard reset right now.
The main reason for the recent woes in the cryptocurrency industry was the collapse of Sam Bankman-Freed’s FTX cryptocurrency exchange.
