The Economic Club of New York has hosted kings, prime ministers, and presidents, as well as Amazon.com Inc’s Jeff Bezos and JPMorgan Chase & Co’s Jamie Dimon. Central bankers’ comments at the 115-year-old organisation have moved markets.
Sam Bankman-Fried, a 30-year-old cryptocurrency billionaire, is probably the first person to play a computer game while giving a talk.
As the featured guest one morning in February, Bankman-Fried looks schlubby as usual, reclining on a gaming chair in blue shorts and a gray T-shirt advertising his cryptocurrency exchange, FTX, his mop of curly hair flattened by his headphones. He’s speaking by Zoom from his office in the Bahamas.
Off camera, the detritus of someone who more or less lives at work litters his desk: crumpled bills from the US and Hong Kong, nine tubes of lip balm, a stick of deodorant, a 1.5‑pound canister of sea salt labeled “SBF’s salt shaker”, and an open packet of chickpea korma that he had for lunch the day before. The beanbag where his assistant says he sleeps most weekdays is so close he could practically roll onto it.
As he fields questions about how the US should regulate his industry, he pulls up a fantasy game called Storybook Brawl, chooses to play as “Peter Pants”, and prepares for battle with someone who goes by “Funky Kangaroo”.
“We’re anticipating a lot of growth in the United States,” Bankman-Fried says as he casts a spell on one of the knights in his fairy-tale army.
The novelty of appearances like this has long since worn off for Bankman-Fried, who’s testified before US Congress twice since December. The previous weekend, he watched the Super Bowl from box seats just in front of NBA star Steph Curry – an FTX endorser.
There was lunch with basketball legend Shaquille O’Neal and a party DJ’d by the head of Goldman Sachs Group Inc. The singer Sia invited him to a dinner at a Beverly Hills mansion with Bezos and actor Leonardo DiCaprio, where Kate Hudson sang the national anthem and he chatted about crypto with pop star Katy Perry. The next day she told her 154 million followers on Instagram, in an unsolicited endorsement, “im quitting music and becoming an intern for @ftx_official ok”.
Bankman-Fried is so blasé that he lets me watch his six screens over his shoulder as he fields the kind of messages that most executives protect like state secrets. Just that morning he appeared on NPR and emailed with reporters for Puck and the New York Times. His top Washington strategist wrote at one point to say that Senator Cory Booker, a Democrat from New Jersey, would sign on to his preferred approach to regulation.
Bankman-Fried got a message saying MoneyGram International Inc was for sale and spent a few seconds considering whether the company could be a good bet. An assistant informed him that the head of an investment bank was in the Bahamas and wanted to visit him for five minutes. “Meh,” Bankman-Fried wrote back.
That evening he planned to fly to the Munich Security Conference for a meeting with the prime minister of Georgia. Given the insane speed and riskiness of his climb to the top echelons of the financial world, almost anything else must seem low stakes by comparison.
Five years ago, Bankman-Fried was working for a charitable organisation that promoted the then-fringe idea of “effective altruism”: using scientific reasoning to figure out how to do the most good for the most people. Then he spotted a seemingly too-good-to-be-true pricing anomaly in Bitcoin and decided that, for him, the right path would be making tons of money to give away.
Now, Bankman-Fried is one of the richest people in the world, with a fortune of more than US$20bil (RM84.36bil), according to the Bloomberg Billionaires Index, after venture capitalists recently invested in FTX and its US arm at a combined US$40bil (RM168.72bil) valuation.
For all his wealth, Bankman-Fried tells me his core philosophy remains the same. He’ll keep enough money to maintain a comfortable life: 1% of his earnings or, at minimum, US$100,000 (RM421,800) a year. Other than that, he still plans to give it all away – every dollar, or Bitcoin, as the case may be.
He’s a kind of crypto Robin Hood, beating the rich at their own game to win money for capitalism’s losers. Yet he’s now part of the power structure that causes the problems he says he wants to fix. He makes big political contributions and pushes his company’s agenda in Washington. And so far he’s donated less to charity than he’s spent on naming rights for the Miami Heat’s arena (cost: US$135mil/RM569.43mil over 19 years) and airing a Super Bowl ad with comedian Larry David portraying a curmudgeonly crypto sceptic (an estimated US$30mil/RM126.54mil).
He sees no inconsistency; he’s investing to maximise the amount of good he does, eventually, even if he’s risking what he’s already made in crypto.
As by far the richest person to emerge from the effective-altruism movement, Bankman-Fried is a thought experiment from a college philosophy seminar come to life. Should someone who wants to save the world first amass as much money and power as possible, or will the pursuit corrupt him along the way?
The way Bankman-Fried’s peers describe him, he sounds like a strange sort of capitalist monk. One says he worked so hard in the early days that he rarely showered. Another says he swore off relationships because he doesn’t have time. It seems like he views even sleep as an unnecessary luxury.
“Every minute you spend sleeping is costing you X thousand dollars, and that directly means you can save this many less lives,” says Matt Nass, a colleague and childhood friend.
These days, Bankman-Fried lives in Nassau, the capital of the Bahamas. FTX is planning to build a 1,000-employee campus overlooking the ocean.
For now it’s headquartered in a one-story red-roofed building near the airport. Desks are still labeled with names written on sticky notes, as if the roughly 60 people who work there haven’t had time to unpack.
The day before his prestigious talk/Storybook Brawl gaming session, as I’m talking to his assistant in the break room, Bankman-Fried shuffles in shoeless, wearing white crew socks. “Oh, hey,” he says. We sit down later in a conference room.
I ask him about his trip to the Super Bowl. “I don’t know if ‘fun’ is exactly the word I would use to describe it,” Bankman-Fried says, scratching an itchy patch on his arm. “Parties are not my scene.”
Bankman-Fried lives like a college student perpetually cramming for finals. He drives a Toyota Corolla, and when he’s not at the office, he crashes at an apartment with 10 or so roommates, though it’s a penthouse at the island’s nicest resort. Bankman-Fried figures as many as five of his co-workers are also billionaires. All are around his age.
Friends say he calmly assesses the odds in any situation, whether it’s in the middle of a board-game marathon or after he’s been nudged awake on his beanbag to weigh in on a tricky trade. He tells me that, while he doesn’t like to waste time by economising, he doesn’t see much value in buying things.
“You pretty quickly run out of really effective ways to make yourself happier by spending money,” Bankman-Fried says. “I don’t want a yacht.”
The crypto industry might seem like an odd choice for a do-gooder: It’s facilitated endless scams, turned ransomware into an industry, and sucks up tons of energy-as much as the country of Malaysia, by some estimates. Bankman-Fried doesn’t see it that way. He says FTX is running an honest market, checks customers’ backgrounds, buys carbon credits to offset its emissions, and is more efficient than the mainstream financial system. But it’s clear the main appeal for him is getting rich quick.
He smiles as he shares a chart that shows FTX growing faster than his largest competitors, such as Binance. The market is huge.
FTX is only the No. 3 crypto exchange by volume yet handles US$15bil (RM63.27bil) of trading on a good day. Instead of shares of Microsoft Corp, users are buying and selling Bitcoin, Ether, Dogecoin, and hundreds of other weird cryptocurrencies.
Bankman-Fried has set his sights on the US market, which is dominated by Coinbase Global Inc. He wants to offer cryptocurrency futures, swaps, and options, which he sees as a potential US$25bil (RM105.45bil)-a-day market. If he succeeds in taking over crypto, the mainstream finance industry is next.
“We’re sort of playing in the kiddie pool,” Bankman-Fried says. “Ideally, I would want FTX to become the biggest source of financial transactions in the world.”
The me-first ethics of the novelist Ayn Rand have been the inspiration of ruthless entrepreneurs from Uber Technologies Inc’s Travis Kalanick to tech mogul Peter Thiel. Bankman-Fried’s capitalist muse is the utilitarian philosopher Peter Singer, a professor at Princeton and an animal-rights advocate.
Bankman-Fried first came across Singer’s work when he was a teenager living in Berkeley, California. His parents are both Stanford law professors. His mother also runs an influential data-driven Democratic donor group, and his father trained as a clinical psychologist. In writings since the 1970s, Singer has posed a deceptively simple ethical question: If you walked by a child drowning in a shallow pond, would you stop to pull her out, even if it would muddy your clothes?
He then argued that if you’d do that – and who wouldn’t? – you have no less of a duty to save a faraway person from starvation by donating to an international aid group. Not giving large sums of money away is as bad as letting the child drown.
Bankman-Fried agrees, though he wasn’t always sure what to do about it. “It is very demanding, if you take it seriously,” he says. “But I do think it’s basically right. Like, if that’s the right thing to do, then I don’t want to deny that because it seems hard.”
By 2012, when he was a junior studying physics at MIT, he described himself as a utilitarian like Singer and had become a vegan. He joined a coed fraternity called Epsilon Theta, where, instead of throwing keggers, members stayed up all night playing board games and slept in an attic full of bunk beds. Bankman-Fried recruited other "Thetans” to hand out pamphlets for an anti-factory-farm group.
That year, Bankman-Fried went to a talk by Will MacAskill, a 25-year-old doctoral student at Oxford who was trying to turn Singer’s ideas into a movement. He and his collaborators aimed to use mathematical calculations to figure out how individuals could do the most good with their money and time. They dubbed it “effective altruism”.
Over lunch, MacAskill told Bankman-Fried more about another one of his ideas: “earning to give.” He said that for someone of Bankman-Fried’s mathematical talents, it might make sense to pursue a high-paying job on Wall Street, then donate his earnings to charity. GiveWell, an effective-altruism group based in Oakland, California, says each US$4,500 (RM18,981) spent on insecticide-treated bed nets to fight malaria in Africa can save one life.
MacAskill estimated at the time that a successful banker who donated half her income could save 10,000 lives over the course of a career.
MacAskill’s ideas are controversial. Some say the ends don’t justify the means – that Wall Street perpetuates inequality and undermines whatever good might be done by donations. (MacAskill argues that while altruists shouldn’t take jobs that harm society, much of finance is neutral.) Others say the movement flatters the rich by painting them as heroes and fails to address the root causes of poverty.
“Effective altruism doesn’t try to understand how power works, except to better align itself with it,” Amia Srinivasan, an Oxford philosophy professor, wrote in a 2015 review of a book by MacAskill. But MacAskill’s pitch appealed to the young utilitarian.
MacAskill, laughing, remembers Bankman-Fried’s matter-of-fact response: “He basically said, ‘Yep, that makes sense’.”
Another MacAskill acolyte had gone to work for Jane Street Group, a high-frequency trading firm in New York. Bankman-Fried got a job there, too, and for three years after graduation, he worked as a trader and every year gave away about half of his six-figure salary to animal-welfare groups and other effective-altruism-approved charities. But he grew restless.
He left for MacAskill’s Centre for Effective Altruism. Then he happened upon a cryptocurrency website and noticed something odd. It was 2017, and crypto was in the middle of its first boom. The price of Bitcoin spiked 10 times that year, and investors sank almost US$5bil (RM21.09bil) into hundreds of “initial coin offerings”, or ICOs, many of them barely concealed scams.
Bankman-Fried, like many on Wall Street, didn’t understand crypto. What caught his attention was a page on CoinMarketCap.com that quoted prices from exchanges around the world. Despite crypto proponents’ talk about a decentralized financial revolution, most activity relies on private exchanges to match buyers and sellers. People who want to buy Bitcoin or Litecoin or Ether simply send their dollars, yen, or euros to an exchange, trade back and forth for a while, and then withdraw their cash.
Bankman-Fried saw that certain coins were selling for way more on some exchanges than others. This was the kind of buy-low, sell-high arbitrage opportunity he’d learned to exploit at Jane Street. But there he’d built complex mathematical models for trades that aimed to make money off tiny price differences. On crypto exchanges, the discrepancies were hundreds of times bigger.
“That’s too easy,” Bankman-Fried recalls thinking. “Something’s wrong.”
Some of the data were false, and some of the trades were impossible to pull off. Capital controls prevented traders from sending cash home from South Korea, where Bitcoin sold for 30% more than in the US. But in Japan, which didn’t have those rules, Bitcoin still traded at a 10% premium. In theory, someone could earn 10% every day by buying Bitcoin on a US exchange and sending it to a Japanese one to sell. At that rate, in a little more than four months, US$10,000 (RM42,180) would turn into US$1bil (RM4.21bil) .
Bankman-Fried recruited a few friends to help him with the project. There was Gary Wang, a housemate from MIT then working on flight data for Google; Caroline Ellison, a trader from Jane Street; and Nishad Singh, a friend of his younger brother’s who was then an engineer at Facebook. All were effective altruists who bought into Bankman-Fried’s pitch that this was their best chance to make and give away a lot of money.
They moved into a three-bedroom house in Berkeley and dug into the arbitrage. The obstacles to the trade were mainly practical. Bankman-Fried named his company Alameda Research to sound harmless. But US banks viewed cryptocurrency as so sketchy that some wouldn’t let him open an account. Japanese exchanges would allow only Japanese people to withdraw money in yen. So he opened a subsidiary in Japan and hired a local representative.
Still, the business sounded fishy, and bank tellers would raise questions about his overseas wire transfers. He had so much trouble sending the money that he started calculating whether it made sense to charter a plane, fly to Japan, and have a planeload of people withdraw cash and bring it home. (It didn’t.)
Once Bankman-Fried found willing banks, each day became a race. If they didn’t wire the money out of Japan before the branch closed, they’d miss out on that day’s 10% return.
Completing the cycle required the precision logistics of a heist movie. A team of people spent three hours a day in a US bank to ensure money transfers went through, and another team in Japan waited for hours at the front of the teller line when it was time to wire the money back. At the peak, Alameda was sending US$15 million back and forth daily and generating a US$1.5 million profit.
Within a few weeks, before the price difference disappeared, the company had earned about US$20 million. Few bets paid off as easily, but there were others that came close. Compared with the stock market, crypto offered fat targets because ordinary investors were piling in, and only a handful of smart-money players were hunting for arbitrages.
In 2018, Bankman-Fried went to a Bitcoin conference in Macau where he met some of the other big players in the market and decided to stay at the center of the action. He told his colleagues on Slack that he wouldn’t be returning to Berkeley. Eventually, many of them joined him in Hong Kong, which has more permissive regulations than the US.
By 2019, Alameda was throwing off hundreds of thousands of dollars of profit a day, enough, by effective altruists’ logic, to save a life every hour if Bankman-Fried had chosen to give the money to the right charities. Instead, he and his colleagues decided to reinvest their winnings, partly into building their own crypto exchange.
The marketplaces were in a sorry state. They were buggy, frequently crashing when prices plummeted or spiked. Some charged Alameda fees to compensate the exchanges for their own losses on margin loans to customers – a practice unheard of on the New York Stock Exchange.
One of the largest, BitMEX, was under US investigation. (Two of its founders pleaded guilty in February to violations of the Bank Secrecy Act and face potentially yearslong prison sentences.) It took Bankman-Fried’s crew four months to write the code underlying a new exchange, which opened for business in May 2019.
FTX catered to big traders, offering dozens of different coins to bet on, complex derivatives like tokens with built-in leverage or index futures, and even bets on elections and stock prices. It offered margin loans, so traders could ramp up their returns – and risk. Customers could borrow up to 101 times their collateral – slightly higher leverage than offered by the competition. (FTX cut the limit to 20 times last year after criticism.) And, crucially, traders could put up cash as collateral to borrow any coin they wanted, which some rivals didn’t allow.
It was a hit, in part because so many people wanted to use the exchange to trade with Alameda. Daily trading volume reached US$300 million by July of that year and an average of US$1 billion in 2020. FTX takes a cut of two basis points (a basis point is one one-hundredth of 1% in Wall Street jargon) on most orders – that’s about US$9 in fees to buy one Bitcoin for US$45,000, the price in late March.
That added up to revenue of US$1.1 billion for the exchange last year, and about US$350 million in profit, Bankman-Fried says. (Alameda, which he no longer runs day to day, made an additional $1 billion in profit in 2021 alone.)
Dan Matuszewski, co-founder of the crypto investment fund CMS Holdings, says Bankman-Fried handled customer service at all times of day and solicited ideas for new things to trade. “They have colossal risk appetite,” says Matuszewski, who trades on FTX and also invested in the exchange. “They’ll try things that fail constantly. It’s calculated, and it’s smart.”
If Bankman-Fried had stayed in Berkeley, many of the bets FTX offered would’ve been not quite, well, legal. Gary Gensler, chair of the US Securities and Exchange Commission, says most cryptocurrencies should be regulated like stocks and exchanges such as FTX like traditional markets. Those that ignore the rules aren’t following the law, he says.
“This asset class is rife with fraud, scams, and abuse,” Gensler said in a speech last year. “Right now, we just don’t have enough investor protection in crypto.”
FTX, incorporated in the Caribbean country of Antigua and Barbuda, initially barred Americans from trading, though many professionals such as Matuszewski were able to access it because they already controlled offshore companies. But the US market for crypto is huge. Rival Coinbase generates more than US$600 million a month in revenue, even though it offers only coins it argues don’t fall under SEC rules.
In 2020, Bankman-Fried opened a US exchange with a limited menu of tokens to trade. He’s been on a marketing blitz for it since. On top of the Super Bowl commercial and naming the FTX Arena in Miami, he’s spent US$210 million to sponsor a video-gaming team and signed up endorsers including quarterback Tom Brady, former Red Sox slugger David Ortiz, and tennis star Naomi Osaka. (FTX in March also acquired the company behind Storybook Brawl.)
He’s now pushing Congress for new rules that would allow him to offer more coins and crypto derivatives. He says the SEC should share oversight for crypto with the Commodity Futures Trading Commission, generally viewed as more friendly to the industry. He’s hired a former CFTC commissioner as head of regulatory strategy, bought a derivatives exchange licensed by the agency, and made the maximum US$5,800 donation to about a dozen members of Congress from both parties. (In 2020 he donated US$5 million to a committee supporting Joe Biden, becoming one of the president’s biggest donors.)
Perhaps unsurprisingly, he’s gotten a friendly reception when he’s gone to Washington. “I’m offended you have a much more glorious Afro than I once had,” Booker, the New Jersey senator, joked at a February hearing.
Bankman-Fried says he’s trying to lay out a framework for federal oversight and move the debate away from extremes such as “ban it or let it go wild”.
Rohan Grey, a law professor at Willamette University who’s worked with Democrats to develop crypto regulations, says the market needs strict rules to protect consumers from fraud and prevent its swings from destabilizing the broader financial system. In his view, lobbying like Bankman-Fried’s hinders those efforts.
“Anytime people propose stronger regulations, people like him go out and try to prevent it from happening,” Grey says. “And, of course, big money talks.”
Young tech entrepreneurs like Bankman-Fried have turned the effective-altruism movement into a force in philanthropy. More than 7,000 people have pledged at least 10% of their career earnings through a group run by the Centre for Effective Altruism. Dustin Moskovitz, a Facebook founder, donates hundreds of millions of dollars a year to charities the movement has identified as effective. Tesla Inc’s Elon Musk enlisted a pro-poker-player-turned-effective-altruist to advise him on giving.
Bankman-Fried tells me he gave away US$50 million last year, including to pandemic relief in India and anti-global-warming initiatives. This year he says he’ll donate at least a few hundred million and up to US$1 billion, as much as the largest foundations.
Like other effective altruists, Bankman-Fried has been drawn to threats that could lead to humanity’s extinction. In his view, something that has even a tiny chance of saving the lives of the trillions of people who might live in future generations can be more valuable than alleviating suffering today. Some dangers sound like science-fiction plotlines: rogue artificial intelligence, deadly bioweapons, and warfare in space.
MacAskill, the effective-altruism movement founder, says Bankman-Fried was momentarily excited by the idea of buying up coal mines – both to prevent emissions and to keep fuel on hand in case it’s needed in a post-apocalyptic scenario. (He decided it wasn’t cost-effective.)
Bankman-Fried now says his top priority is pandemic preparedness. A future disease outbreak, he says, could be as lethal as Ebola and as contagious as Covid-19. He’s funding an advocacy group headed by his younger brother that’s pushing governments to spend more, and he gave US$5 million to the nonprofit investigative journalism group ProPublica to cover the topic.
“We should expect that pandemics will get worse over time and more frequent, just because of the possibility of lab leaks,” he says. “This has a nontrivial chance of destabilizing the world if we don’t get prepared for it.”
I ask Bankman-Fried whether he ever has any doubt about dedicating his life completely to making money and giving it away. He presses his face in his hands for a few seconds before answering. “It’s not a decision that I constantly reevaluate, because I think it just doesn’t do me any good to be constantly reevaluating anything,” he says. “It doesn’t, minute to minute, feel to me like a decision anymore.”
Around 5pm the day of the Economic Club talk, Bankman-Fried crashes, passing out first in his gaming chair, then curling up on the blue beanbag next to his desk, his elbow cradling his curly hair. The office is quiet, other than the clicking of employees chatting on Slack. Behind Bankman-Fried, a programmer examines some code, his feet up on his desk and his shorts stained with soy sauce. After about an hour, Bankman-Fried stirs, eats a package of Nutter Butters, then closes his eyes again.
During his catnap, traders will swap about US$500 million of Bitcoin, Ether, and other cryptocurrencies on his exchange, and FTX will skim off an additional US$100,000 or so in fees. – Bloomberg
(Faux is a senior reporter on the investigations team in New York.)