Before FTX collapsed it was assumed that Alameda Research was one of the top quantitative trading firms and market makers within the industry. However, much of that perception may have been a facade as a recent report details that Alameda suffered from financial troubles as early as 2018. People familiar with the matter said Alameda was losing money back then and a massive loss from a failed xrp trade in mid-2018 cut the company’s assets by more than two-thirds.
Alameda Research’s Façade as a Top Quantitative Crypto Trading Firm Crumbles with Reveal of Early Financial Struggles
Sam Bankman-Fried’s (SBF) Alameda Research reportedly lost large sums of money as early as 2018, according to a report published by the Wall Street Journal (WSJ). Alameda Research was a quantitive trading firm that was officially launched in Sept. 2017 with Tara Mac Aulay. Prior to launching Alameda, SBF worked for Jane Street and he traded international exchange-traded funds (ETFs) until he started his position as the director of development at the Centre for Effective Altruism.
Sam Bankman-Fried.
Reports detail that when SBF started Alameda, the trading firm was making millions by via arbitrage. As an arbitrageur, SBF claimed that opportunities stemmed from countries like Japan and South Korea as bitcoin (BTC) was trading for a premium in those regions. Because of the so-called “Kimchi premium” in South Korea, SBF said BTC was 30% higher at times and in Japan, it was 10% higher. There’s a slew of reports that highlight Alameda making millions from crypto arbitrage, but a recent report from the Wall Street Journal published on Dec. 31, 2022, details Alameda’s trades were not always profitable.
The report says that while SBF stepped down as chief executive from Alameda, he was still very much in control of the company until the very end. The WSJ reporter Vicky Ge Huang detailed that Alameda “took big gambles, winning some and losing plenty.” Further, the WSJ report says SBF continuously borrowed money to bolster such bets and he promised investors double-digit returns if they helped him. According to Austin Campbell, Citigroup’s former co-head of digital assets rates trading, the firm was looking to partner with market makers like Alameda, but Campbell said he grew skeptical of SBF’s firm.
“The thing that I picked up on immediately that was causing us heartburn was the complete lack of a risk-management framework that they could articulate in any meaningful way,” Campbell detailed.
SBF’s Solicitation of Lenders Raised Questions About Company’s Financial Stability
According to people familiar with the matter and Alameda’s trading, the arbitrage opportunities quickly stopped and Alameda’s trading algorithm allegedly made a lot of bad bets. In the spring of 2018, Alameda took a huge hit betting on xrp (XRP) losing over two-thirds of Alameda’s assets. So SBF reportedly started to solicit loans again with pitches promising 20% returns, the people familiar with the matter explained. A document reviewed by the WSJ shows SBF’s lawyer explained how Alameda was a top market maker in one specific pitch to a lender, but the lawyer did not reveal any financial information.
Other people familiar with the matter said SBF sought lenders in Jan. 2019 at a Binance Blockchain Week event in Singapore. While Alameda sponsored the event with $150K, the conference was allegedly used by SBF to solicit lenders and a pamphlet was handed out to potential investors. The pamphlet claimed Alameda held $55 million in assets under management (AUM) but whether or not that data was factual remains to be seen. By Feb. 2019, SBF decided to move Alameda from California to Hong Kong. Former associates said that during the crypto bull run in 2021, Alameda made roughly $1 billion in profits, but when the bull run ended, SBF’s bets began to sour.
Reports also show that Alameda’s former CEO Caroline Ellison had a significant negative balance on FTX in May 2022, months before the FTX fallout. Complaints from the indictment in Manhattan, the U.S. Securities and Exchange Commission (SEC) charges, and the lawsuit filed by the Commodity Futures Trading Commission (CFTC), indicate that Alameda’s losses were so large, it pushed SBF to allegedly borrow funds from FTX customers to bolster the company after the losses. The WSJ further notes that SBF contemplated shutting Alameda down months before the two companies collapsed but the idea never came to fruition.
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2018, Alameda Research, Alameda’s losses, Arbitrage, assets under management, Binance Blockchain Week, Bitcoin, borrowing funds, Caroline Ellison, ceo, CitiGroup, crypto arbitrage, crypto bull run, Financial Troubles, ftx, FTX fallout, Hong Kong, indictment, investor pitches, Jane Street, Japan, kimchi premium, loans, Manhattan, Market Makers, profits, 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 about the report that says Alameda Research was suffering from bad bets as early as 2018? Let us know your thoughts about this subject in the comments section below.
Jamie Redman
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