FTX
Sam Bankman-Fried is a cofounder of the cryptocurrency exchange FTX and a legend in the world of crypto trading.
His crypto arbitrage strategy netted him 10% daily returns on million-dollar crypto trades, helping him to accumulate a net worth that placed him on Forbes' list of cryptocurrency billionaires at just 29 years old.
Although Bankman-Fried's wealth provides him with more than enough money to retire comfortably on a faraway island, he instead dedicates his time to building the ultimate cryptocurrency exchange for traders.
His goal is to create an alternative to the "s---show exchanges" that existed when he was trading in 2017 and 2018, Bankman-Fried said in an interview with Insider.
"We thought the odds are pretty high that we would fail on the exchange because we thought we would just never get any users and that would be that, but it seemed high enough upside that it was worth going for anyway," Bankman-Fried said.
Within two years, FTX went from relatively unknown to one of the top five derivative-trading exchanges, with more than $400 billion in monthly trading volume in April.
FTX changed the trading game by enabling the management of collateral through a single wallet. This meant traders could trade anything on FTX through one margin wallet, as long as they had enough collateral to meet their total position size.
"It's one of the rare times that you find a change, which both simplifies the product and makes it more powerful," Bankman-Fried said.
Some might assume that, by simplifying the collateralization process, FTX would face more risk when it comes to liquidations, a process that occurs when traders don't have enough collateral to support their position.
Yet when a recent flash crash caused a 17% drop in the value of bitcoin and liquidations worth $9.3 billion on April 17, FTX fared better than most.
The platform is designed to discourage mass liquidations by limiting the size of the positions traders can put on with really high leverage and having an engine that liquidates only as much as it needs to, Bankman-Fried said.
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There is fierce competition from other traders in the cryptocurrency market, and breaking in is hard, Bankman-Fried said. "It's not a super forgiving place to try and get into," he said.
First, get to know the market by learning from the experts. Bankman-Fried spent several years learning his craft at the trading firm Jane Street.
Second, try to figure out what edge you have, such as great technology or a good instinct for the direction of the market, he said.
"I think one of the interesting things is the blurring line between trader and an investor in crypto," Bankman-Fried said.
Bankman-Fried's approach to trading is evolving. He has formed an appreciation for how great crypto investors have been able to operate in different market environments and is spending more time thinking about strategies that set him up well for future cycles, something he said he didn't have great instincts for previously.
"Often, a lot of the upside is in the cases where the bull market stays. That's where you should be focusing a lot of your thoughts because that's where it matters the most what you do," Bankman-Fried said. "But with the caveat that you have to make sure that you don't f--- yourself over if there's a temporary bear market, that you don't put yourself in a position where you can't survive that."
Bitcoin vs. etherThe most-traded cryptocurrency is bitcoin, which has a market capitalization near $1 trillion. In recent weeks, the Ethereum blockchain's native currency, ether, has arguably made its case as a challenger to bitcoin, as the currency has surged more than 100% in price since the start of April with a market capitalization of $450 billion.
Bitcoin's 93% gain so far this year has been dwarfed by ether's 450% increase in that time. The Ethereum network houses a variety of decentralized finance applications, including nonfungible tokens, or NFTs, which have been all the rage among artists and celebrities. The multiple uses of the network, plus the fact that its carbon footprint is considerably smaller than that of bitcoin, have burnished ether's popularity.
Bankman-Fried said he would be surprised to see ether overtake bitcoin, considering bitcoin has the massive advantage of being the first and agreed-upon default cryptocurrency, which is worth a lot.
For all its diverse uses, Ethereum has its own issues, such as serious scaling challenges, which are going to hold it back, Bankman-Fried said.
"It's hard for me to see ether displacing bitcoin, although I could be wrong there," he said.
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See Also:
- Fundstrat's head of digital assets research walks us through his $100,000 and $10,500 year-end price targets for bitcoin and ether — and shares the 8 tokens he's bullish on
- The head of global macro strategy at Delphi Digital breaks down why Bitcoin's price has more room to run over the next 9 to 12 months in 4 charts — and shares what the next 10 years could look like for the emerging crypto economy
- A crypto VC firm that made an early investment in Ethereum is betting big on Polkadot. The founders explain why dot could overtake ether — and flag 2 promising DeFi projects that should be on your radar.
