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Sam Bankman-Fried vs JP Morgan: Saviors of new centuries?

Photo credit: Federal Trade Commission

Can Bankman-Fried do for crypto currencies, what Morgan did in the 1907 financial crisis?

By Kiran N. Kumar

When cryptocurrency company Alameda Ventures of Sam Bankman-Fried bailed out Voyager and the embattled exchange BlockFi, the crypto entrepreneur has visibly emerged as a saviour of the tumbling sector striking a similarity with what J.P. Morgan did during a 1907 financial crisis.

Morgan, the US banker who bought up the stock of troubled companies in an effort to halt the collapse of the businesses in the 1907 financial crisis, was mainly known for reorganizing and making them more profitable and stable. He is also known for reorganizing major railroads and financing industrial consolidations that formed General Electric, US Steel, and International Harvester.

Read: Indian American indicted in cryptocurrency money laundering scheme (March 11, 2022)

Back to the present, Alameda Research was Bankman-Fried’s launch pad into the crypto ventures to exploit crypto arbitrage opportunities and became one of the crypto landscape’s trading behemoths, that went on to book $1 billion profit in 2020, just in three years after its launch.

Crypto leader Bitcoin’s market cap now accounts for about 45% of total crypto value, down from 90% at the start of 2016. Already more than $40 billion wiped out in its market value, ushering in a wave of layoffs across the market, while crypto lending platform Celsius Network halted withdrawals amid liquidity crunch.

Has the crypto winter or Ice Age for crypto set in?
Mizuho analyst Dan Dolev goes beyond the term winter when he said, “It’s a crypto Ice Age. I think this is going to be very deep, very prolonged, and many cryptocurrencies will not survive.”

Some, however, argue that since its launch in 2009, Bitcoin’s price has tumbled more than 50% six times and will overcome this hurdle too.

But this time, the real reason cited for the crash in the cryptocurrency market was the first encounter with the Federal Reserve’s move to tighten an inflation outbreak. Apart from Bitcoin, about 19,000 digital currencies are facing the impact vividly.

Read: Is cryptocurrency the next Internet Bubble waiting to burst? (October 16, 2021)

Rise of Almeda and Bankman-Fried
Ever since the year 2022 opened with a downturn in the crypto world, Alameda has emerged as savior to the crypto market similar to the way Citadel and Susquehanna are for traditional equities – playing the role of a behind-the-scenes quant-trading giant.

Shunned by the latter two giants, Bankman-Fried entered the crypto domain aggressively and even launched the world’s fourth-largest cryptocurrency exchange by trade volume, FTX in 2019.

The 30-year-old son of Stanford Law School professors, known as a math wizard who studied in MIT before entering the vibrant but volatile crypto market at the age of 27, has emerged as a crypto billionaire and the expectations are high that he would be the saviour of the crypto market now.

Read: Bitcoin billionaire Sam Bankman-Fried bails out embattled crypto firms BlockFi and Voyager (June 22, 2022)

Born in America but based out of Hong Kong, Bankman-Fried’s crypto exchange FTX reached nearly a $20 billion valuation this year. While the future for the young wizard is promising, his domain is facing the worst upheaval since January 2022.

The task ahead shows how many cryptocurrencies survive and how Bankman-Fried rescues them, the way J.P. Morgan did in the 1907 financial crisis.

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