Tim Draper, founder and managing partner of Draper Associates and Draper University, balked at comparing the stunning implosion of crypto trading platform FTX to famed biotech startup Theranos, in a conversation with MarketWatch. .
“It’s not like Theranos,” he said. In a phone interview on Friday, Draper said he was unaware of any comparison between the downfall of embattled FTX, which filed for bankruptcy protection on Friday, and Theranos.
FTX founder Sam Bankman-Fried, the former CEO of the platform and its associated companies, was facing an $8 billion shortfall, The Wall Street Journal reported.
However, some have drawn such comparisons, including Galaxy Digital BRPHF,
CEO Mike Novogratz in an interview with CNBC: “You know, we basically have a situation that looks like Theranos,” he told the Shopping Network on Thursday.
“I’m furious,” Novogratz said, referring to how FTX’s capsize is hurting confidence in the nascent crypto market, along with bitcoin BTCUSD,
the ancestor of today’s crypto, formed in the aftermath of the 2008-2009 financial crisis.
Theranos founder, Elizabeth Holmes, rose to fame believing she had invented revolutionary advances in blood testing technology. The company’s valuation rose to $9 billion as it attracted a wave of high-profile investors including Draper, before it was discovered that such technology did not exist. She was found guilty of fraud in January 2022.
For his part, Bankman-Fried, 30, announced his resignation from his position as head of FTX on Friday. The SEC and the DOJ investigate the recent implosion of FTXalthough at this point, Bankman-Fried has no legal issues.
The collapse comes as some had come to see Bankman-Fried as something of a savior for other beleaguered crypto firms earlier this year. SBF, as it is sometimes called, was a member of MarketWatch list of the 50 most influential people.
Like Holmes, he was advertised as a phenomenon, appearing on the Fortune magazine August/September cover as the “next Warren Buffett,” the legendary value investor.
The speed of his slowdown was also staggering. His net worth had been estimated at $15.6 billion prior to this week, according to the Bloomberg Billionaires Index. But now the vast majority of his fortune has been wiped out, Bloomberg said.
According to the WSJ, some $2 billion was poured into the three-year-old FTX with little oversight or sufficient scrutiny of its activities.
The exchange lent billions of dollars to fund risky bets at its affiliate trading firm, Alameda Research, using money customers had deposited at FTX, according to reports.
A spokesperson for FTX declined to comment.
“It’s about people who have gotten ahead on their skis.” Drape says. He added: “I feel for those who have been caught up in this mess.”
The venture capitalist and crypto enthusiast said he has never seen SBF as crypto’s golden boy and is widely skeptical of platforms that don’t offer clear transparency regarding their assets.
“I have been very careful with DeFi [decentralized finance] and avoided most of them,” said Draper, who is an investor in Coinbase Global Inc. COIN trading platforms,
“You’re better off with good solid management, good solid performance,” Draper said.
“I tend not to follow the hype,” he added.
For the most part, cryptocurrencies, including Ether ETHUSD,
and bitcoin, faded away as the FTX drama unfolded. The stock market fell briefly on Tuesday, with the Dow Jones Industrial Average DJIA,
losing more than 600 points on Tuesday, ahead of the broader market – including the S&P 500 SPX,
– bounced back on Thursday, with a formidable 1,200-point rally.
Additional reading from FTX: