SBF Spin Machine Sets Cycle to Reputation Wash

While FTX’s bankruptcy continues to reverberate across the entire cryptocurrency ecosystem, negatively impacting perception of the entire space, the exchange’s former CEO, Sam Bankman-Fried (SBF), spent the weekend calling contacts in search of new commitments from investors while squeezing in an interview with The New York Times that has been widely panned for its lack of bite.

For example, a scan of the Times’ story covering the FTX implosion and SBF’s involvement contained not one mention of “fraud,” “crime,” “criminal,” “illiquid,” “hidden” or “back door” — all relevant terms when discussing the exchange’s total failure, although it did reveal that SBF is still “getting sleep.”

In a series of tweets posted Tuesday night (Nov. 15), SBF claimed that FTX is still solvent, even as the exchange’s new boss, John J. Ray III — who oversaw the final days of Enron’s unwinding — has begun the company’s formal bankruptcy process.

This approach is nothing new for the one-time golden boy of crypto. Ad Age named FTX a top-10 marketer of the year in 2021, and both SBF himself and FTX became the semi-global face of crypto and Web3 on the back of viral, hype-fueled campaigns featuring A-list stars like Tom Brady and Larry David. The company’s Super Bowl ad, “Don’t Miss Out on Crypto,” made FTX one of the most retweeted brands during the big game, and even took home the “Most Comical” award from USA Today’s Ad Meter.

But was all this media hype and marketing a smokescreen meant to boost confidence and help raise money while the holes in FTX’s balance sheet widened?

After all, no other industry player had so much credibility, or as much money, as SBF, who was able to get Tony Blair and Bill Clinton to fly to the Bahamas and make a joint, off-the-record appearance at his crypto conference this past April. And both SBF’s credibility and money were bestowed, in part, by the media.

The beginning of 2022 was big for FTX, at least on the marketing front, seeing the company reveal in April an impressive advertising campaign with its newly appointed social impact advisor and head of global luxury partnerships, Gisele Bündchen. The campaign ran in the June print editions of several highly regarded glossies, including Vogue (both American and international issues), GQ, Vanity Fair, and The New Yorker.

The first half of 2022 was also notable for a different reason: It was the onset of a “crypto winter,” or a bear market in the cryptocurrency space. The prices of the vast majority of the largest 100 cryptocurrencies by market cap dropped by double digits during this time, driven by extended capital outflows from spooked investors.

FTX’s own token, FTT, which was valued at a one-time high of just under $80 in September 2021, was affected by the macro downturn, tumbling nearly 50% in the first six months of 2022. The FTT token debuted in 2019, and FTX customers who bought FTT were able to execute their trades on the exchange at a discount, as well as use the tokens as collateral. In a sense, the FTT tokens acted like loyalty points, and SBF often referred to FTT as “the backbone of the FTX ecosystem.”

But the tokens, which when taken in a vacuum were comprised of little more than bits of data, weren’t as useful outside of FTX’s own ecosystem. Customers didn’t know that the tens of millions of FTT tokens weren’t themselves that widely distributed. A lot of FTT, in fact, belonged to FTX and its affiliated companies, including Alameda Research. This allowed FTX’s wholly-owned marketplace to effectively set the price or value of its own created currency.

The bulk of advertising for crypto and crypto-related brands has used celebrity and hype to frame investment in the space as a historically good move. The subtext of these campaigns was clear: The train was leaving the station, and if consumers wanted a ride to the crypto promised land of rocket ship returns, this was the time to buy a ticket and get on board.

Crypto firms tend to have, and rely heavily upon, assets that are highly correlated to confidence in crypto as a whole — meaning a loss of confidence can often entail a corresponding loss of assets. To that point, many market watchers say the FTT token was little more than an elaborate, rewards-based marketing scheme meant to attract buyers to the FTX platform. The moment there was the slightest concern about the token’s marketplace validity, the value of that token could vanish to practically nothing.

Despite the fear of missing out (FOMO)-fueled hype, this was exactly what happened to FTX and FTT. Spurred by a leaked balance sheet for Alameda Research showing that much of the trading firm’s reserves — meant to back its customer assets — were based on FTT, the digital token centrally controlled and printed by FTX which was closely affiliated with Alameda, confidence in FTX’s once mighty brand completely disappeared, sending its native token plummeting.

Now that his company and nearly 130 affiliates have disappeared into bankruptcy, and he himself is being called before Congress, SBF is doing what he does best in tough moments like these: hitting the campaign trail.

In the past few days, he has been calling some of the world’s largest investors asking for billions of dollars from funds including Sequoia, Apollo, TPG, Nomura and even the Saudi sovereign wealth fund.

“So, what can I try to do? Raise liquidity, compensate customers and reboot,” SBF tweeted Tuesday night. He said he might fail but added: “And part of me thinks I might get somewhere.”

16) Maybe I’ll fail. Maybe I won’t get anything more for customers than what’s already there.

I’ve certainly failed before. You all know that now, all too well.

But all I can do is to try. I’ve failed enough for the month.

And part of me thinks I might get somewhere.

— SBF (@SBF_FTX) November 16, 2022

So far, all the firms approached have declined. As the crypto boom-bust cycle runs its course, so too it appears, has the sense of FOMO.

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