The Bitcoin maximalist executive chairman of MicroStrategy explains how he believes FTX founder Sam Bankman-Fried manipulated "air tokens" to loan himself $10 billion of customers' money.
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Calling Sam Bankman-Fried the "poster child" of crypto "shitcoinery," Bitcoin maximalist Michael Saylor argues that the parts of the digital asset world who should know better helped lead unsophisticated investors off a cliff.
About $8 billion has allegedly been lost by up to one million customers of Bankman-Fried's now-bankrupt FTX exchange, according to the restructuring expert brought in as its new CEO.
Enron bankruptcy veteran John Ray III told a bankruptcy court that in 40 years, he'd never seen "such a complete failure of corporate controls and such a complete absence of trustworthy financial information."
Which gave Saylor, who as CEO turned business software firm MicroStrategy into a huge Bitcoin investor and proponent of Bitcoin as digital gold, the opportunity to go for an "I told you so" run.
Speaking on Patrick Bet-David's Valuetainment podcast, Saylor called out the crypto industry as "greedy, arrogant or foolish" for accepting and rewarding people who pump tokens created out of thin air.
Tokens that, he said, everyone including the Securities and Exchange Commission (SEC) and politicians know are almost entirely unregistered securities.
'They Should Have Known Better'
"There's three constituencies that got taken for billions of dollars here," Saylor said.
"Sam scraped billions from unsuspecting investors in Silicon Valley. They should have known better. He took billions from crypto hedge funds and crypto banks like BlockFi and Voyager — they should have known better. And then he took probably $10 billion or more from depositors on his exchange — they have the best argument. They were staring at terms and conditions that said he's not going to rehypothecate or use their assets. And he just lured them with the promise of cheap trading, high leverage."
The first group is the venture capital community that invested $2 billion in an offshore exchange without asking for a board seat or doing due diligence because "they were chasing what they thought were insane gains," Saylor said.
"FTX is showing a company that goes from $50 million in revenue to $500 million in revenue to $1 billion in revenue and they thought they just had the next great thing. So Sam lies — that's any con right? I think I'm getting a deal that is too good to be true, and the conman is lying to me."
That second group are the crypto lenders who gave Bankman-Fried billions in loans on poor collateral — much like they did to the hedge fund Three Arrows Capital (3AC), whose collapse drove many near or into bankruptcy. FTX has done the same to at least BlockFi and likely several others.
The FTX house of cards explains why he bailed out BlockFi and tried to do the same for Voyager Digital earlier this year, Saylor said. By taking over the companies, he could avoid paying back loans, allowing him to "roll the entire fraud forward," he added.
The third are the retail traders lured to FTX by trading fees vastly lower than their competitors and by loose margin, Saylor said.
The 'Diabolical' Twist
But it is in what Sayor alleges is the creation and manipulation of tokens like FTX's exchange token FTT and the SRM token created by the decentralized exchange Serum — which founded by FTX and its sister company, the Bankman-Fried trading firm Alameda Research, and the Solana Foundation which Bankman-Fried also supported — that the worst part comes, he said.
"The diabolical twist in the FTX story that none of us saw coming," he said, is that Bankman-Fried used those cryptocurrencies — which Saylor calls "air tokens" as in "out of thin air" — to create collateral on Alameda's balance sheet that can be used to secure a loan.
But a mainstream bank would only give a tiny fraction of the value of traditional stocks used as collateral, he said — only enough that dumping it on the market would not cause the price to collapse.
But, Saylor alleges, what Bankman-Fried did was grant himself a loan from FTX at a far, far higher margin than he ever would have gotten from a traditional lender.
"What he did was, in essence, extract $10 billion of real stuff — dollars, Bitcoin, saleable assets — and he pledged $10 billion worth of air tokens."
The "diabolical twist" Saylor claimed, was that Bankman-Fried "didn't just generate $10 billion of an unregistered security to dump it on the unsuspecting retail" as that would have taken far too long.
"What he did is he generated a $10 billion unregistered security and then just borrowed $10 billion secretly from his depositors, and then went and gambled it, traded it, spent it, lost it."