Before FTX collapsed, Alameda Research was to be one the most prominent quantitative trading firms in the industry. However, a different outlook emerges when examining a recently published report, which reveals financial struggles as far back as 2018. People familiar with the subject hint that Alameda took a major hit when a large trade failed mid-2018.
Alameda Research’s Troubles Reveal a Fragile Façade of a Top-Ranked Crypto Trading Firm
Sam Bankman-Fried’s (SBF) Alameda Research has had a long history of success, officially launching in 2008 as a quantitative trading firm. In September 2017, Tara Mac Aulay was appointed director of development at Jane Street, prior to launching Alameda. SBF was responsible for trading ETFs around the world until then. Arbitration was a profitable venture for the trading company.
The December 31, 2022 Wall Street Journal (WSJ) report provides more details about when SBF began Alameda. Countries such as Brazil and India were seen as opportunities, as bitcoin (BTC) was trading at a premium due to the so-called “Kimchi premium” in South Korea. According to SBF, BTC was sometimes 30% higher than in the past and occasionally lower in Japan at 10% higher. Crypto arbitrage was not a new phenomenon, making millions through it, according to the WSJ report.
The revelation of financial problems early on reveals that Alameda Research’s façade of a top-ranked crypto trading firm is crumbling. Arbitrage and trading were stopped quickly, and the trading algorithm is accused of making many wrong bets. In the spring of 2018, Alameda bet on xrp (XRP) and took a big hit, losing more than two-thirds of its assets. To rebuild the company following losses, SBF again borrowed money with promises of a 20% return.
The Request for SBF Lenders Raised Questions About Alameda’s Financial Stability and Viability
At a Binance Blockchain Week Event in Singapore in January 2019, SBF sought lenders. A brochure was distributed to potential investors, claiming Alameda had $55 million in assets under management (AUM), but this has yet to be determined. By February 2019, SBF had decided to move Alameda from California to Hong Kong. Former associates claimed that the cryptocurrency bull run in 2021, Alameda SBF bets lost $1 billion, and the bull run ended.
It is also evident that former Alameda CEO Caroline Ellison indicated a substantial negative balance in FTX in May 2022, a few months before the FTX crash. The US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) prosecution’s complaints and lawsuit filed in Manhattan indicate that SBF was so impacted by the losses, it allegedly borrowed money from FTX clients to rebuild the company. The WSJ also notes that SBF considered closing Alameda, although the idea collapsed months earlier.
People familiar with the matter and the financials at Alameda Research report that SBF was removed as CEO and was in control of the company through the end. The WSJ reporter Vicky Ge Huang explained it as, “made big bets, won some and lost a lot.” Austin Campbell, former co-head of the digital asset rate trading at CitiGroup was interested in partnering with market players like Alameda, but his venture made him skeptical. “What I realized right away that was giving us heartburn was the complete lack of a risk management framework that they could articulate in a meaningful way,” Campbell detailed.
