Is considered wealthy with 90 million liquidity

Billionaire at 29: this is how a man got rich with crypto deals

  • Sam Bankman-Fried became a self-made billionaire by starting a crypto trading firm in 2017.
  • In a podcast, he revealed a strategy that supposedly secures 10 percent returns on million dollar trades every day.
  • He also shared why carefully weighing risks is important in the crypto world in order to make a profit.

In just three and a half years, Sam Bankman-Fried went from an ETF trader to a cryptocurrency legend and one of the youngest billionaires in the world. He has an estimated net worth of nearly $ 9 billion.

In 2017, Bankman-Fried, a former trader at the hard-to-reach quantum trading firm Jane Street, founded a crypto trading firm called Alameda Research, which manages over $ 100 million in digital assets. Because of the big strides the company is making in the crypto market, Bankman-Fired is now known as the "Moby Dick of the crypto whales".

The million and billion dollar trades of the company made Bankman Fried a self-made billionaire at the age of only 29, as reported by Forbes magazine. However, he plans to donate and give away as much of his wealth as possible.

Bankman-Fried: There isn't enough time for institutions in the crypto world

For the US news company Bloomberg's "Odd Lots" podcast, Bankman-Fried sat down with Tracy Alloway and Joe Weisenthal to discuss his journey into the crypto world, the lucrative arbitrage opportunities he found along the way, and the development of his cryptocurrency exchange FTX to explain.

Bankman-Fried described how he stumbled into the cryptocurrency world while looking for a career change. What he found was a crypto market ripe for arbitrage opportunities - taking advantage of the price differentials in a single asset - at a time when Bitcoin was in the midst of a frenzied bull cycle in late 2017.

"There were a lot of the hallmarks of a really inefficient system with a huge need for liquidity, which is basically a huge demand all at once," Bankman-Fried said on the podcast. "It's growing really fast - lots of sales, lots of retail users, and not a lot of time to build institutions and liquidity or a system that works seamlessly." Bankman-Fried saw that the Bitcoin market would likely be very large, and therefore price discrepancies.

The kimchi bonus

During this time, there was a well-publicized Bitcoin arbitrage opportunity in Korea known as the Kimchi Reward.

In the US, Bitcoin was priced at around $ 10,000. On Korean stock exchanges, however, the price was around $ 15,000. According to Bankman-Fried, this was mainly due to a huge net demand for Bitcoin in Korea. There was a huge margin of about 50 percent at the top, he said, but the problem was that it was basically impossible to take advantage of the opportunity on a large scale because the Korean won is a regulated currency.

“It's not that easy to do this arbitrage. You get stuck at one end, ”said Bankman-Fried. “And a lot of people have tried to make that deal. Many found a way to do it for small sizes. But it's very, very hard to do it for big sizes, even though there are billions of dollars a day in sales in this trade, because you couldn't just unload the Korean won for non-crypto. ”The bonus is still there today , however, it is no longer really significant. CryptoQuant listed the premium at 18 percent on April 6th.

Daily returns of 10 percent

Bankman-Fried looked for a similar opportunity in other markets and found it in Japan. He described Japanese trading to the Finance Magnates website as "an absurdly good deal," the best deal he has ever seen.

"It wasn't quite the same trading premium, but trading was at its peak with a 15 percent premium or so instead of 50 percent," said Bankman-Fried on the Odd Lots podcast.

Investors could buy Bitcoin for $ 10,000 in the U.S., send it to a Japanese exchange, sell it for $ 11,500 in Japanese yen, and then convert it back into dollars. “It took about a day to complete this trade considering the wire transfers that come with it. But it was doable, and you could scale it up and literally do 10 percent a day of the week, which is just absolutely crazy, ”said Bankman-Fried.

The hardest part is finding investors

He added that trading was a thousand times what could be done with traditional financial spreads and that trading could be done on a large scale with hundreds of millions of dollars a day.

But why did others not understand and implement this trading opportunity beforehand? This is mainly due to the complexity. Traders face one hurdle after another when attempting this type of trading - from finding the right platform to buy Bitcoin in bulk, to getting permission to use Japanese exchanges and bank accounts, to transporting millions of US dollars from Japan to the US every day.

"You have to put this incredibly sophisticated global corporate framework together in order to actually carry out this trade," said Bankman-Fried in an interview with "Finance Magnates". Finding investors willing to provide the capital is the hard part, but it pays off. "Somehow you get your $ 200 million in capital," Bankman-Fried said on the podcast.

Risk versus opportunity

The dispersion of the crypto ecosystem is what helps generate the big arbitrage premiums over the traditional financial model. There is no merger between exchanges and no central clearing firms or brokers, according to Bankman-Fried. “So it's really capital intensive and you have to worry about counterparty risk,” he added.

But this risk also creates opportunities. With so many unregulated and underregulated players in the crypto space, it seems risky to get into business, especially for an investor who is relatively uninformed about crypto, said Bankman-Fried. But as soon as investors and traders understand the trade a little deeper, and that the counterparty risk is close to zero, the advantage is still high.

"You can make a lot of money if you can really figure out when there are a lot of benefits and when there aren't and when there is a lot of actual counterparty risk and when there isn't," said Bankman-Fried.

This text has been translated from English. You can find the original here.