FTX’s spectacular collapse is nothing like Theranos, says venture investor and crypto bull Tim Draper

FTX’s spectacular collapse is nothing like Theranos, says venture investor and crypto bull Tim Draper

Tim Draper, founder and managing partner of Draper Associates and Draper University, refused to compare the spectacular implosion of crypto trading platform FTX with the infamous biotech startup Theranos, in a conversation with MarketWatch.

“It’s not like Theranos,” he said. In a telephone interview on Friday, Draper said he had not been aware of anyone sincerely comparing the fall of the struggling FTX, which filed for bankruptcy protection on Friday, to Theranos.

FTX founder Sam Bankman-Fried, the now-former CEO of the platform and its affiliates, was facing an $8 billion deficit, The Wall Street Journal reported.

However, some have made 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 said on the business network Thursday.

“I’m furious,” Novogratz said, referring to how FTX’s capsize is hurting confidence in the nascent crypto market, with bitcoin BTCUSD,
the progenitor of the current crypto, formed in the wake of the 2008-2009 financial crisis.

Theranos founder Elizabeth Holmes rose to prominence on the belief that she had invented groundbreaking advances in blood-testing technology. The company’s valuation grew to $9 billion as it attracted a wave of high-profile investors, including Draper, before it was discovered that no such technology existed. She was convicted of fraud in January 2022.

Bankman-Fried, 30, for his part, announced his resignation as head of FTX on Friday. The SEC and DOJ are investigating FTX’s recent implosion, although at this point Bankman-Fried is not in any legal trouble.

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The collapse comes as some had seen Bankman-Fried as a savior of sorts for other beleaguered crypto firms earlier this year. SBF, as he is sometimes called, was a member of MarketWatch’s list of the 50 most influential people.

Like Holmes, he was heralded as a phenomenon, appearing on the August/September cover of Fortune magazine as the “next Warren Buffett”, the legendary value investor.

The speed of his downhill has also been amazing. His net worth had been estimated at $15.6 billion before this week, according to the Bloomberg Billionaires Index. But now the vast majority of his fortune is wiped out, Bloomberg said.

According to the WSJ, about $2 billion was poured into the three-year-old FTX with little oversight or adequate scrutiny of the business.

The exchange lent billions of dollars to finance risky bets at affiliate trading firm Alameda Research, using money that customers had deposited with FTX, according to reports.

A spokesman for FTX declined to comment.

“This is about people who stepped in front of their skis.” Draper said. He added: “I feel for those who were caught up in this mess.”

The venture capitalist and crypto enthusiast said that he, for one, has never viewed SBF as the golden boy of crypto and has been largely skeptical of platforms that do not offer clear transparency regarding their holdings.

“I have been very cautious about DeFi [decentralized finance] and have avoided most of them,” said Draper, who is an investor in the Coinbase Global Inc. COIN trading platforms,
and Ledger.

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“You’re better off with good solid management, good solid performance,” Draper said.

“I don’t tend to follow the hype,” he added.

Mostly, cryptocurrencies, including Ether ETHUSD,
and bitcoin, have swooned as the FTX drama unfolded. The stock market moved briefly lower on Tuesday, with the Dow Jones Industrial Average DJIA,
lost more than 600 points on Tuesday, ahead of the broader market — including the S&P 500 SPX,
— bounced back on Thursday, with a huge 1,200-point rally.

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