- After Bitcoin fell to $20,000 in June 2022, Alameda's net asset value was about $10 billion, SBF trial reveals.
- Former Alameda CEO Caroline Ellison regretted not having hedged more and offered to step down, according to recent declarations.
- SBF is on trial for orchestrating a multibillion-dollar fraud, leaving a lot of customers, individuals, and organizations alike, suffering exposure-related losses.
The Sam Bankman-Fried (SBF) trial continues, with the FTX founder himself on the stand. His lawyer Mark Cohen continues to cross-examine him after last week’s discoveries that SBF thought it was legal to move FTX cryptocurrency deposits to its sister hedge fund, Alameda Research, run by Caroline Ellison, SBF’s girlfriend at the time.
Also Read: SBF on the stand: Sam Bankman-Fried thought taking FTX deposits through Alameda was legal
SBF could have embezzled more funds given the opportunity
The SBF trial’s latest declarations suggest that he could have misappropriated more customer funds if Alameda Research’s CEO Caroline Ellison had hedged better. In retrospect, on November 2, a Coindesk report on Alameda Research's balance sheet helped spark the fall of FTX. SBF responded to the report by publishing his version of what the balance sheet looked like in 2021 and 2022. Ultimately, it all pointed to Alameda not sufficiently hedging against the risk of an extreme market crash. The October 30 court session reiterated the assertions.
SBF resumed the stand on Monday, October 30, with the jury attending after being sidestepped on Judge Kaplan’s direction. The judge wanted to determine which parts of the testimony should be exposed to the jury and which ones should be kept separate.
According to SBF, the FTX exchange was trying to increase its trading speed and was developing a database so that even non-developers could have access, including himself. He would spend up to 12 hours a day on this endeavor, either directly or indirectly, with the expectation that if successful, the initiative would bring between $1 to $2 billion in annual revenue.
He also revealed that FTX tried to manage risk, on the off-chance that a customer went negative. SBF claimed that he had discussions with both Alameda Research executives, Caroline Ellison and Sam Trabucco. The latter left the company in August 2022, claiming he “needed to relax” and had “bought a boat”. FTX imploded a few months after, with Trabucco still keeping a low profile.
Specifically, the conversation was about hedging, which to the layperson is basically taking an offsetting position in an asset or investment that reduces the price risk of an existing position. A hedge is, therefore, a trade that is made with the purpose of reducing the risk of adverse price movements in another asset.
When Bitcoin price fell below $20,000 in June, Alameda Research’s net asset value (NAV) was $10 billion. This represented a colossal loss for the hedge fund, causing Ellison not only to weep, according to SBF, but also to consider stepping down. Nevertheless, they agreed to hedge more.
SBF: In September, I asked her again about hedging. I asked what the scale was. She gave me that number. I told her I was glad - but that it should be a bigger number, at least twice as much. She sent me some spreadsheets.
— Inner City Press (@innercitypress) October 30, 2023
Cohen: Any more?
SBF: She agreed
In a November 6 post on Crypto X from FTX’s rival exchange, Binance, CEO Changpeng Zhao (CZ) indicated that his exchange would be liquidating its FTT holdings. Customer withdrawals grew to $1 billion, leaving SBF concerned.
In response, Ellison tried to cauterize the withdrawals, tweeting that FTX would be buying FTT at $22 per token, relative to its price immediately before the crash, at $25. Nevertheless, withdrawals still increased, with November 7 recording $4 billion in net withdrawals – 100 times an average day, according to SBF. This had SBF anticipating a liquidity crisis. At this point, the hedges had little to no impact.
Cohen: Then what?
— Inner City Press (@innercitypress) October 30, 2023
SBF: Alameda asset crash. We had very little margin left.
Cohen: What impact did the hedges have?
SBF: Very little. I took down the tweet thread.
Meanwhile, it is imperative to remember that SBF is on trial for orchestrating a multibillion-dollar fraud, leaving a lot of customers, individuals and organizations alike, suffering exposure-related losses.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
Bitcoin Weekly Forecast: BTC nosedives below $95,000 as spot ETFs record highest daily outflow since launch
Bitcoin price continues to edge down, trading below $95,000 on Friday after declining more than 9% this week. Bitcoin US spot ETFs recorded the highest single-day outflow on Thursday since their launch in January.
Bitcoin crashes to $96,000, altcoins bleed: Top trades for sidelined buyers
Bitcoin (BTC) slipped under the $100,000 milestone and touched the $96,000 level briefly on Friday, a sharp decline that has also hit hard prices of other altcoins and particularly meme coins.
Solana Price Forecast: SOL’s technical outlook and on-chain metrics hint at a double-digit correction
Solana (SOL) price trades in red below $194 on Friday after declining more than 13% this week. The recent downturn has led to $38 million in total liquidations, with over $33 million coming from long positions.
SEC approves Hashdex and Franklin Templeton's combined Bitcoin and Ethereum crypto index ETFs
The SEC approved Hashdex's proposal for a crypto index ETF. The ETF currently features Bitcoin and Ethereum, with possible additions in the future. The agency also approved Franklin Templeton's amendment to its Cboe BZX for a crypto index ETF.
Bitcoin: 2025 outlook brightens on expectations of US pro-crypto policy
Bitcoin price has surged more than 140% in 2024, reaching the $100K milestone in early December. The rally was driven by the launch of Bitcoin Spot ETFs in January and the reduced supply following the fourth halving event in April.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.