Summary List Placement

In the space of three and a half years, Sam Bankman-Fried has quietly transformed from an ETF trader into a cryptocurrency legend and one of the world’s youngest billionaires, with an estimated net worth of almost $9 billion.

In 2017, Bankman-Fried, a former trader at the elusive quant-trading firm Jane Street, launched a crypto-trading firm called Alameda Research, which manages over $100 million in digital assets. He has become known as the “Moby Dick of crypto whales” because of the big moves the firm makes in the crypto market.

The firm’s million- and billion-dollar trades turned Bankman-Fried into a self-made billionaire by the age of 29, Forbes reported. He plans to donate and give away as much of his wealth as possible.

In a recent appearance on Bloomberg’s “Odd Lots” podcast, Bankman-Fried sat down with Tracy Alloway and Joe Weisenthal to explain his journey into crypto, the lucrative arbitrage opportunities he’s found along the way, and the development of his cryptocurrency exchange, FTX.

Bankman-Fried described stumbling into the world of crypto as he searched for a career change. What he found was a crypto market ripe for arbitrage opportunities — taking advantage of the price differences in a single asset — at a time when Bitcoin was in the midst of a raging bull cycle in late 2017.

“It had a lot of the hallmarks of something that might be a really inefficient system with a big need for liquidity, which is basically gigantic demand all of a sudden,” Bankman-Fried said on the podcast. “Growing really rapidly — lots of volume, lots of retail users, and not a lot of time to build up institutions, not a lot of time to build up liquidity, not a lot of time to build up a system that worked seamlessly.”

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Bankman-Fried saw that the Bitcoin market would likely have very large volumes, and therefore price discrepancies.

The kimchi premium

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

Bitcoin was pricing at around $10,000 in the US. But on Korean exchanges, it was pricing at around $15,000. This was because of a huge net demand for Bitcoin in Korea, Bankman-Fried said.

There was a vast spread of around 50% at its peak, he said, but the problem was that it was essentially impossible to arbitrage the opportunity at scale because the Korean won is a regulated currency.

“You can’t sort of easily loop that arbitrage through. You get stuck at one end,” Bankman-Fried said. “And a lot of people tried to do this trade. Many found a way to do it for small size. Very, very hard to do it for big size, even though there are billions of dollars a day volume trading in it, because you couldn’t offload the Korean won easily for non-crypto.”

The premium still exists today, although it’s not as significant. CryptoQuant had the premium listed at 18% on April 6.

Daily returns of 10%

Bankman-Fried searched for a similar opportunity in other …read more

Source:: Business Insider


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