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From Crypto Royalty to Convict: Sam Bankman-Fried's Dramatic Fall Unraveled

Sam Bankman-Fried's fall from a crypto billionaire to a convicted felon exemplifies the risks and consequences in the volatile crypto industry.

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Quadri Adejumo
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From Crypto Royalty to Convict: Sam Bankman-Fried's Dramatic Fall Unraveled

From Crypto Royalty to Convict: Sam Bankman-Fried's Dramatic Fall Unraveled

Two years ago, Sam Bankman-Fried was a 30-year-old multibillionaire living in a $35 million Bahamas penthouse, partying with his pals while running one of the world's most valuable crypto companies. Today, he's a 32-year-old inmate at the Metropolitan Detention Center in Brooklyn, waiting for a judge to tell him how long he'll spend behind bars for masterminding one of the biggest financial frauds in American history, in the words of U.S. Attorney Damian Williams.

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From Penthouse to Prison: The Rapid Downfall

Bankman-Fried, the founder and former CEO of failed crypto exchange FTX, will head on Thursday to a federal court in downtown Manhattan where U.S. District Judge Lewis Kaplan will deliver his sentencing. Prosecutors have recommended a prison sentence of 40 to 50 years. It took jurors only about three hours of deliberations in November to find Bankman-Fried guilty of all seven criminal accounts against him. For a high-profile, monthlong trial that involved nearly 20 witnesses and hundreds of exhibits, experts said at the time that they'd never seen such a speedy decision.

The Rise of a Crypto Empire

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It started with the Kimchi Swap. In 2017, as a quant trader at Jane Street, Bankman-Fried noticed something funny when he looked at bitcoin pricing on CoinMarketCap.com. Instead of a uniform price across exchanges, Bankman-Fried would sometimes see a 60% difference in the value of the digital currency. His immediate instinct, he said, was to get in on the arbitrage trade, buying bitcoin on one exchange and selling it back on another, pocketing the difference. That's the lowest hanging fruit, Bankman-Fried told CNBC in September 2022. The arbitrage opportunity was especially compelling in South Korea, where the exchange listed price of bitcoin was significantly higher than in other countries. It was dubbed the Kimchi Premium, a reference to the traditional Korean side dish of salted and fermented cabbage.

The Fall of FTX and Bankman-Fried's Empire

Then the market turned. The so-called crypto winter of 2022 wiped out hedge funds and lenders across the crypto universe. Bankman-Fried boasted that he and his enterprise were immune. Behind the scenes, Alameda was borrowing money to invest in failing digital asset firms to keep the industry afloat. May of 2022 brought the crash of stablecoin Luna, creating a domino effect that sent crypto prices plunging and devastating other lenders. Alameda had borrowed from lenders including Voyager Digital and BlockFi, which both ended up going bankrupt. Alameda secured its loans with FTT tokens minted by FTX. Bankman-Fried's empire controlled the vast majority of the

This case serves as a stark reminder of the volatility and unpredictability of the crypto market, as well as the importance of transparency and regulation. Bankman-Fried's journey from a high-flying crypto entrepreneur to a convicted felon underscores the potential consequences of unchecked ambition and the fragility of digital asset empires built on unstable foundations. As the crypto community and its investors reflect on this saga, the story of Bankman-Fried's rise and fall will likely influence the industry's path forward, fostering a greater emphasis on accountability and sustainable practices.

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