When cryptocurrency exchange FTX raised $400 million from investors such as Softbank, Temasek, Tiger Global, and others in January, its net worth took off.
The funding lifted its value to $32 billion.
By November, it was bankrupt.
While FTX pumped up its reputation with big-name investors, it was also allying itself with high-profile celebrities, including NFL great Tom Brady, supermodel Gisele Bündchen, NBA superstars Stephen Curry and Shaquille O’Neal, tennis player Naomi Osaka, and Hollywood’s Larry David.
And, before its collapse, FTX reportedly was also hoping to form a partnership with pop and country music star Taylor Swift.
FTX CEO Bankman-Fried was the institutional face of the cryptocurrency industry. He amassed a net worth of more than $21 billion but lost most of it in a short few days beginning on Nov. 8.
The company was a mechanism people used to buy and sell cryptocurrencies such as bitcoin and ether. But confidence in FTX was destroyed as its customers hurried to withdraw their money by selling the cryptocurrencies they had previously purchased using the platform.
Tom Williams/CQ-Roll Call, Inc via Getty
Why the run on the Bank Occurred
On Nov. 2, Coindesk published a story that raised concerns about the financial health of FTX and Alameda Research. The article claimed that the assets of Bankman-Fried’s Alameda Research consisted of FTT (~FTTUSD) , the cryptocurrency issued by FTX.
The revelation that FTX was using FTT as collateral on its balance sheet caused great concern due to the concentration risk and volatility of FTT. Customers and investors became skeptical about the capital reserves of Alameda and FTX.
Reacting to the Coindesk story, Binance announced on Nov. 6 that it would sell about $530 million of FTT, triggering the run on the bank.
By Nov. 8, Binance announced it was acquiring FTX as cryptocurrency values such as bitcoin’s were falling. Stocks of crypto companies, including Robinhood (HOOD) – Get Free Report and Coinbase (COIN) – Get Free Report, were plummeting in value.
The very next day, Binance said it was withdrawing its acquisition offer. The situation was worse than first believed.
On Nov. 11, FTX filed for bankruptcy and Bankman-Fried resigned as CEO.
Soon it was announced that FTX was under federal investigation by prosecutors in New York for giving customer funds to Alameda Research.
Bankman-Fried Had Pursued Taylor Swift
On Dec. 7 it was revealed that FTX had been negotiating a $100 million sponsorship deal in spring 2022 with pop and country music superstar Taylor Swift.
The deal was in its late stages, reported the Financial Times (FT), citing “people with knowledge of the talks.”
Several members of FTX’s marketing team were opposed to the deal, the publication wrote, believing it was too high of a price to pay. They also questioned the value of celebrity endorsements and whether Swift was an appropriate partner for its customer’s demographics, the story said.
One former FTX employee said the company sought a “light degree of endorsement” from Swift on social media. But another person said Swift never said she would endorse the company.
“Taylor would not, and did not, agree to an endorsement deal. The discussion was around a potential tour sponsorship that did not happen,” the person told FT.
Since the negotiations did not result in a deal, Taylor is free from any tough public relations discussions about ties to the company, which has been denounced for its celebrity- and notoriety-driven approach to promoting its currency.
“Consumers have been inundated with crypto advertising — anyone that watched the Super Bowl knows what I mean — aimed at stirring feelings of urgency and stoking fears of missing out,” said Sen. Amy Klobuchar, D-Minn., at a recent Senate hearing.