The vegan billionaire SBF overturned the cryptocurrency market. What about overturning the stock market?


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The cryptocurrency exchange FTX created by SBF handles more than tens of billions of dollars in transactions every day, and he is also exploring and expanding equity tokens and other new markets.

Written by: Alexander Osipovich
This article was originally published in the Wall Street Journal

Want to trade Tesla stocks 24 hours a day? Or want to bet on Robinhood Markets Inc.’s stock performance in the IPO? Or do you want to bet whether Trump will return to the presidency in 2024?

There is everything you want on FTX, and it’s much more than that. As one of the fastest growing cryptocurrency exchanges in the world, FTX provides a number of innovative products and services.

FTX originated from the creativity of 29-year-old billionaire SBF. He insists on being vegetarian, lives in an apartment with his roommate, and often sleeps on the lazy couch in the office. Last year, because of a donation of 5 million US dollars to a group supporting Joe Biden’s campaign, this young man from California attracted people’s attention. According to the analysis of The Wall Street Journal, this made him Biden’s No. The second largest CEO supporter, second only to Michael Bloomberg.

Recently, FTX signed a 19-year deal worth $135 million to purchase the naming rights for the Miami Heat’s home stadium. The deal was approved by the National Basketball Association just last week, which also means that starting from the 2021-22 NBA season, the stadium now called American Airlines Arena will be renamed FTX Stadium. FTX stated that the transaction aims to promote the development of its smaller US exchange, and its US exchange offers fewer products than FTX’s overseas business.

The American Airlines Arena, home of the NBA Miami Heat, will soon be renamed FTX Arena. Image Credit: JASEN VINLOVE/REUTERS

Cryptocurrency is becoming more and more popular. This year, the value of Bitcoin more than doubled, and Coinbase Global Inc., one of the largest cryptocurrency companies in the United States, went public on the Nasdaq stock market this week. If you ask the public for their views on this, some people may say that Coinbase’s $84 billion market value indicates that Bitcoin mania is out of control, while others will say that it indicates that traditional finance is about to be conquered by disruptors from the cryptocurrency world.

For many insiders in the cryptocurrency industry, the truly disruptive actions are not led by Coinbase. Coinbase is regulated and has long been committed to helping newbies buy Bitcoin easily. Offshore exchanges such as FTX are even more exciting. They operate outside the jurisdiction of U.S. regulators and provide digital currencies and cryptocurrency derivatives. These complex products allow traders to place high-risk bets on the future prices of Bitcoin, Ethereum, and other cryptocurrencies.

Before entering the cryptocurrency industry, SBF worked at quantitative trading giant Jane Street Capital LLC. The FTX exchange he created and operated was stable and reliable, surpassing many competitors, and he donated 1% of FTX revenue To the charity, it won many praises. However, his aggressive and even ambitious behavior in opening up new markets, including some ways to circumvent US regulatory regulations, has also attracted the attention of many people.

For example, FTX is the first major cryptocurrency exchange to provide tokenized stocks (ie, equity tokens). This product can track the stock value of companies such as Tesla, GameStop Corp. or BioNTech SE. Digital currency. It also provides a popular and innovative product, pre-IPO contracts, which allows overseas traders to predict the expected valuation of companies such as Robinhood.

Although FTX’s equity token market is relatively small (the trading volume so far this year is about 1.3 billion US dollars, accounting for only a small part of Tesla’s daily trading volume), in the eyes of cryptocurrency supporters, this is Conducive to liberating stocks from unnecessary constraints. Unlike ordinary stocks, equity tokens can be traded 24 hours a day, and are not limited to the business hours of US exchanges, and investors around the world can trade them. On April 12th, Beijing time, Binance launched their own version of the FTX equity token.

The vegan billionaire SBF has overturned the cryptocurrency market, and then has it overturned the stock market? SBF said: “In fact, the stock exchange still has a lot of room for innovation.” Image source: ANTHONY KWAN for The Wall Street Journal

SBF hopes that US regulators will eventually be able to accept such products. In an interview, he said: “It is only open 5 days a week, and the opening hours are only from 9:30 am to 4 pm, which is a bit incredible. In fact, the stock exchange still has a lot of room for innovation.”

People who are skeptical of cryptocurrencies say that investors should remain vigilant. Lee Reiners, executive director of Duke University’s Center for Global Financial Markets, said: “These things are very novel and complicated. They are destined to burst at some point. At that time, FTX will be like an ant on a hot pot and be targeted by regulators and law enforcement agencies. .”

SBF stated that equity tokens are not much more complicated than American depositary receipts, which allow American investors to trade shares of overseas companies. FTX’s token can redeem the actual corresponding stock at the regulated German investment company CM-Equity AG, which can make the price of the token consistent with the actual stock. The pre-IPO contract adds another conversion link. When the corresponding company is listed, these contracts will be converted into the company’s equity token.

Such products belong to the gray area of ​​regulatory supervision. Lawyers said that if such products are traded in the United States, they are likely to be regulated by the US Securities and Exchange Commission. This will force FTX to comply with various regulations, which may include restricting the provision of its equity tokens to small investors. Therefore, in order to avoid this situation, FTX conducts business overseas and blocks American customers.

But such a strategy has risks. Last October, federal prosecutors accused another offshore cryptocurrency exchange

The founder of BitMEX violated anti-money laundering laws because the company was not registered with the U.S. regulatory agency. At the same time, it was alleged that U.S. citizens who used its platform were not strictly censored, turning a blind eye. The founder of BitMEX denied the allegations.

The vegan billionaire SBF has overturned the cryptocurrency market, and then has it overturned the stock market? FTX monthly transaction volume, statistics on April 14, data source: FTX

Exchanges make money by charging fees to trading users. The more trading volume, the more money the exchange makes. FTX said that so far this month, it has processed an average of approximately US$10.7 billion in transactions per day, compared with approximately US$900 million in daily transactions six months ago. This makes FTX one of the world’s top cryptocurrency exchanges, although this exchange only started operations in May 2019.

The vegan billionaire SBF has overturned the cryptocurrency market, and then has it overturned the stock market? The major exchanges ranked by average daily trading volume, ranked according to data from 4.1-4.14 (including spot and derivative transactions), source: CryptoCompare

According to data from the data provider CryptoCompare, in comparison, Coinbase, which does not provide derivatives trading, has an average daily transaction volume of approximately US$2.6 billion this month. But compared to traditional derivatives exchanges such as the CME Group Inc., the average daily trading volume of FTX is not worth mentioning. The former has a daily trading volume of trillions of dollars.

FTX has always been known for exploring new markets at high speed. Rich Rosenblum, president of GSR, a cryptocurrency trading company, said, “There is no doubt that FTX is definitely a pioneer in product innovation and the speed of launching new products.” Although some of these products have little to do with the focus of FTX cryptocurrency products, they are interesting side products.

For example, during the U.S. presidential election, FTX launched a prediction market where cryptocurrency traders who closely follow the election can place bets on the outcome of the election. In such a market, people bet their assets on future events, and market prices reflect the expected probabilities of various outcomes. Before Election Day, the market showed that Trump had a 30% chance of winning. And after Trump won Florida, the winning rate once soared to 80%, and the winning rate fell after the voting results came out later.

According to FTX’s Trump 2024 contract market data, the former president will have a 9% chance of returning to the White House, but there are not many traders, which also means not to take this data too seriously.

SBF graduated from the Department of Physics at Massachusetts Institute of Technology. His parents were both professors at Stanford Law School. Its initial expectation was to work in the academic circle like parents. But later, he came into contact with the “Effective Altruism” movement and became a supporter and practitioner of this concept. “Effective Altruism” encourages people to maximize their positive impact on society. Therefore, he decided to enter the financial world, hoping to earn a lot of money so that he can donate it to charity.

In 2017, taking a fancy to the opportunities contained in Bitcoin, SBF established Alameda Research. He later founded FTX with some of Alameda’s colleagues, partly because he was disappointed with the quality of existing cryptocurrency exchanges.

SBF-supported organizations include OpenAI (a research laboratory designed to ensure that artificial intelligence helps human society), and the Nuclear Threat Initiative (to reduce the threat of nuclear and biological weapons). SBF stated that his donation to support the Biden Group is also based on similar considerations: He believes that defeating Trump is essential to geopolitical stability.

Although he generously contributed to Biden’s election, the SBF has not yet met President Biden. SBF said: “I would love to talk to him about cryptocurrency regulation, but I think he may not care.”

The vegan billionaire SBF has overturned the cryptocurrency market, and then has it overturned the stock market? SBF works at a desk in the office. Behind is the lazy sofa where he often sleeps. Image source: ANTHONY KWAN for the “Wall Street Journal”

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