Alameda Research Might Fall From The Beginning In 2018

Key Points:

• Alameda’s trading algorithm is designed to conduct a large number of automated and fast transactions, but it caused losses as early as 2018 due to wrong guesses about price movements.
• In late 2018, SBF promised potential lenders annual returns of up to 20 percent in cash or cryptocurrency, from which to use this money to build FTX.

According to the Wall Street Journal, citing people familiar with the matter, Alameda’s trading algorithm is designed to conduct a large number of automated and fast transactions, but it caused losses as early as 2018 due to wrong guesses about price movements.

By the spring of 2018, Alameda’s assets had fallen by more than two-thirds, to about $30 million, partly because of huge losses on XRP, the token of Ripple’s payments network. Sam Bankman-Fried, Alameda owner, needs more and more capital to stay afloat.

In late 2018, he promised potential lenders annual returns of up to 20% in cash or cryptocurrency, according to people familiar with the matter. Su Zhu of Three Arrows Capital also tweeted that SBF had promised proceeds to raise funds for Alameda.

The first Binance Blockchain Week conference was sponsored by Alameda in January 2019, and SBF used the occasion to network with investors and secure finance for his faltering trading company.

FTX was introduced later in April 2019 to provide institutional investors with a haven. Bankman Fried used Alameda to support its expansion after the FTX went live as the trading firm evolved into the exchange’s primary market maker. It was always accessible to other traders who wanted to buy from and sell to them. According to those knowledgeable about Alameda’s strategies, the exchange periodically took the losing side of a deal to attract customers.

The most recent investigation proved that Alameda was doomed from the start. Instead of simply saving it with borrowed money in 2018, Bankman Fried later utilized it to launch and support the expansion of the now-defunct FTX cryptocurrency exchange.

The new complaint by the United States Securities and Exchange Commission (SEC) argues otherwise, contrary to Bankman Fried’s earlier assertion that Alameda and FTX have always operated independently.

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