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Prior to the collapse of FTX, Alameda Research was believed to be one of the leading quantitative trading firms and market makers in the industry. However, much of this perception may have been window dressing, as a recent report details that Alameda suffered financial problems as early as 2018. -2018 reduced the company’s assets by more than two-thirds.
Alameda Research’s Facade As A Top Quant Crypto Trading Firm Crumbles As Early Financial Struggles Revealed
Sam Bankman-Fried’s Alameda Research (SBF) lost large sums of money as early as 2018, according to a report by the Wall Street Journal (WSJ). Alameda Research was a quantitative trading firm officially launched in September 2017 with Tara Mac Aulay. Prior to starting Alameda, SBF worked for Jane Street and traded international exchange-traded funds (ETFs) until he took up his post as Director of Development at the Center for Effective Altruism.
Sam Bankman-Fried.
Reports detail that when SBF launched Alameda, the trading company was making millions through arbitrage. As an arbitrageur, SBF claimed that the opportunities came from countries like Japan and South Korea, as bitcoin (BTC) was trading for a premium in those regions. Due to the so-called “Kimchi bounty” in South Korea, SBF said BTC is sometimes 30% higher and in Japan it is 10% higher. There are a slew of reports that highlight Alameda making millions from crypto arbitrage, but a recent Wall Street Journal report published on December 31, 2022, details that Alameda’s trades were not always profitable.
The report says that even though SBF resigned as CEO of Alameda, he still controlled the company until the very end. WSJ reporter Vicky Ge Huang detailed that Alameda “took big bets, winning a few and losing a lot.” Furthermore, the WSJ report states that SBF has continuously borrowed money to back these bets and it has promised investors double-digit returns if they help it. According to Austin Campbell, former co-head of digital asset rates trading at Citigroup, the company was looking to partner with market makers like Alameda, but Campbell said he became skeptical of the SBF company.
“The thing that I immediately noticed that was giving us heartburn was the complete lack of a risk management framework that they could meaningfully articulate,” Campbell explained.
SBF’s solicitation of lenders has raised questions about the company’s financial stability
According to people familiar with the matter and Alameda trading, arbitrage opportunities quickly shut down and Alameda’s trading algorithm made a lot of bad bets. In the spring of 2018, Alameda took a huge hit by betting on xrp (XRP) losing over two-thirds of Alameda’s assets. Thus, SBF would have resumed soliciting loans with proposals promising returns of 20%, explained people familiar with the matter. A document reviewed by the WSJ shows that SBF’s attorney explained how Alameda was a key market maker in a lender-specific pitch, but the attorney did not reveal any financial information.
Others familiar with the matter said that SBF sought out lenders in January 2019 at a Binance Blockchain Week event in Singapore. While Alameda sponsored the event with $150,000, the conference was reportedly used by SBF to solicit lenders and a brochure was distributed to potential investors. The brochure claimed that Alameda had $55 million in assets under management (AUM), but whether that data was factual or not remains to be seen. In February 2019, SBF decided to move Alameda from California to Hong Kong. Former associates said that during the crypto bull run in 2021, Alameda made about $1 billion in profits, but when the bull run ended, SBF’s bets started to slip.
Reports also show that former Alameda CEO Caroline Ellison had a large negative balance on FTX in May 2022, months before the FTX fallout. Complaints about the Manhattan indictment, the U.S. Securities and Exchange Commission (SEC) charges, and the Commodity Futures Trading Commission (CFTC) lawsuit, indicate that Alameda’s losses were so important that they caused SBF to borrow funds from FTX clients. to strengthen the business after the losses. The WSJ further notes that SBF was considering shutting down Alameda months before the two companies collapsed, but the idea never materialized.
Tags in this story 2018, Alameda Research, Alameda losses, Arbitrage, assets under management, Binance Blockchain Week, bitcoin, loan fund, Caroline Ellison, CEO, CitiGroup, crypto arbitrage, crypto bull run, Financial Troubles, ftx , FTX fallout, Hong Kong, indictment, investor presentations, Jane Street, Japan, kimchi premium, loans, Manhattan, Market Makers, earnings, quantitative trading, quantitative trading firm, report, risk management framework, Singapore, South Korea, Tara Mac Aulay, Trading Algorithm, Wall Street Journal, XRP
What do you think of the report that says Alameda Research was suffering from bad bets as early as 2018? Let us know your thoughts on this in the comments section below.
Jamie Redman
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