Report Shows Financial Troubles Plagued Bankman-Fried’s Alameda Research as Early as 2018 – Bitcoin News
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Before the FTX collapse, Alameda Research was thought to be one of the best quantitative trading firms and market makers in the industry. However, most of this perception may have been a facade, as a recent report states that Alameda suffered financial problems back in 2018. People familiar with the matter said that Alameda lost money at the time and took a massive loss due to a failed xrp trade. -2018 cut the company’s assets by more than two thirds.
Alameda Research’s facade as the best quantitative crypto trading firm is crumbling as early financial struggles are revealed
Sam Bankman-Fried’s (SBF) Alameda Research reportedly lost large amounts of money already in 2018, according to a report published by the Wall Street Journal (WSJ). Alameda Research was a quantitative trading firm that officially launched in September 2017 with Tara Mac Aulay. Before launching Alameda, SBF worked on Jane Street trading international exchange-traded funds (ETFs) until joining the Center for Effective Altruism as director of development.
Reports say that when SBF started Alameda, the trading company was making millions through arbitrage. As an arbitrageur, SBF argued that countries like Japan and South Korea became opportunities because bitcoin (BTC) was traded at a premium in those regions. Because of the so-called “Kimchi premium” in South Korea, SBF said BTC was at times 30% higher and 10% higher in Japan. There are a number of reports highlighting Alameda making millions in crypto arbitrage, but a recent Wall Street Journal report published on December 31, 2022 says Alameda’s trades were not always profitable.
The report says that even though SBF stepped down as CEO of Alameda, he continued to control the company until the very end. WSJ reporter Vicky Ge Huang reported that Alameda “was afraid of big gambles, won and lost a lot.” Additionally, the WSJ report says SBF continually borrowed money to back up such bets and promised investors double-digit returns if they helped him. According to Austin Campbell, former head of digital asset fixed income trading at Citigroup, the firm wanted to partner with market makers like Alameda, but Campbell said he was skeptical of SBF’s venture.
“The thing that I immediately realized that gave us heartburn was the complete lack of a risk management framework that they could articulate in any meaningful way,” Campbell explained.
The request from SBF’s lenders raised questions about the company’s financial stability
According to people familiar with the matter and Alameda’s trading, arbitrage opportunities quickly stalled and Alameda’s trading algorithm allegedly made a lot of bad bets. In the spring of 2018, Alameda took a huge hit in betting on xrp (XRP), losing more than two-thirds of Alameda’s funds. So SBF reportedly started applying for loans again in fields promising a 20% return, people familiar with the matter explained. A document reviewed by the WSJ shows that SBF’s attorney explained how Alameda was the best market maker for a particular lender, but the attorney did not disclose financial information.
Other people familiar with the matter said SBF was looking for lenders in January 2019 at Binance Blockchain Week in Singapore. Although Alameda sponsored the event with $150,000, SBF allegedly used the conference to solicit lenders, and a pamphlet was distributed to potential investors. The pamphlet claimed that Alameda had $55 million in assets under management (AUM), but it remains to be seen whether this information was factual or not. In February 2019, SBF decided to move Alameda from California to Hong Kong. Former colleagues said that during the 2021 crypto bull run, Alameda made about $1 billion in profits, but when the bull run ended, SBF’s bets turned sour.
Reports also indicate that Alameda’s former CEO Caroline Ellison had a significant negative balance on FTX in May 2022, months before the FTX crash. Complaints related to the Manhattan indictment, indictments by the US Securities and Exchange Commission (SEC) and lawsuits filed by the Commodity Futures Trading Commission (CFTC) show that Alameda’s losses were so great that it forced SBF to borrow funds from FTX clients. to strengthen the company after losses. The WSJ further notes that SBF considered closing Alameda months before the two companies collapsed, but the idea never came to fruition.
What do you think of the report that Alameda Research suffered bad bets already in 2018? Let us know what you think about this topic in the comment section below.
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