Crypto: FTX acquisition of Voyager is 'not necessarily dead', Sam Bankman-Fried says

FTX Founder and CEO Sam Bankman-Fried joins Yahoo Finance Live to explain why people shouldn't yet give up on FTX acquiring Voyager and also weighs in on the crypto industry.

Video transcript

RACHELLE AKUFFO: Well, crypto also tracking the equity market declines today. We saw Bitcoin falling below $21,000, still in that holding pattern of the low-$20s. But one name that keeps popping up as we see consolidation in this space, and that's FTX.

Well, FTX Founder and CEO Sam Bankman-Fried is joining us now, along with Yahoo Finance's very own Dave Hollerith. So, Sam, you seem to be on a tear lately when it comes to dealmaking-- most recently with South Korea's Bithumb. And, of course, media reports linking to any crypto exchange that appears to be struggling. So first, what's the strategy with Bithumb? And what's the criteria that you're using when you're picking your acquisitions right now?

SAM BANKMAN-FRIED: So when we're looking at the acquisitions, there are a few different theories behind them. Some of these-- and I think that you can look at the borrowed lending platforms that we interface with-- are primarily about bailouts or primarily about buttressing the capital that these places have in order to protect consumers and to make sure there isn't contagion spreading through the ecosystem.

That was certainly the reason that we started looking at Celsius, at BlockFi, at Voyager, and, ultimately, the reason we ended up sort of moving forward with Voyager-- with BlockFi, rather, on that respect was because they had had good risk management processes that had put them in a place where they were able, with a bit more cash on their balance sheet, to move forward in a strong direction. That's sort of one type.

The other type that we look at is about expanding what our business is. And we tend to not view these as tech acquisitions so much. Some of these are looking at the regulatory side, some of these are looking at the customer base side, and some of these are really international expansion sides. And then, of course, there's a [INAUDIBLE] which is a little bit of a different story, which was a totally new industry that we wanted to explore interfacing with.

DAVID HOLLERITH: Yeah, Sam, I wanted to get on sort of the other side of that, which is the Voyager joint proposal that FTX and company put out on Friday, and it's since been rejected. But I was just curious-- what was the idea behind that proposal? And is the deal dead?

SAM BANKMAN-FRIED: So, yeah, it's a good question. The deal isn't necessarily dead. Like, ultimately, shareholders will get to decide what they want to move forward with. And I don't think we've seen sort of the final journey on that side. We don't know for sure what will end up happening.

But the philosophy behind it basically is, look, like, bankruptcy proceedings suck. They suffer for everyone. They're really unpleasant and customers end up getting screwed in a number of ways. One is just like by the time bankruptcy is over, a lot has been drained from the funds in the first place by the legal process.

A second is that it just takes forever for customers to actually get their funds back. And a third, to sort of pile onto all of that, is that in the end, you just don't actually have what you think you have, sometimes, coming out of these bankruptcy proceedings, where if the asset prices move, customers can be exposed to that and actually end up with whichever is worse-- what it was trading at at the beginning and it was trading at the end of the bankruptcy proceedings.

Those are all reasons that this can be a really unpleasant process for customers. And the core thing that we were thinking about is, how can we just make this as clean as possible for users and just not worry so much about trying to make money off of it or anything like that. That was explicitly something we were trying to avoid with our offer. It was just like, what's the cleanest, quickest thing we can do here for customers?

And that was basically, look, all the assets that remain with Voyager. We'll give them out to the customers pro rata, no nonsense. And we'll do that as soon as possible. We're just ready to move on that if and when the proposal would get accepted. And we even just made it nonbinding, so even if that proposal were in general accepted, customers could decide they don't want to do this.

They want to go through the longer bankruptcy process. And, look, if that's what they want, that's fine with us. We don't want to be prescriptive about this. But we want to give them a more direct option.

SEANA SMITH: Sam, with these recent acquisitions, you, FTX, are getting more and more control of this industry. I think it's a troubling thought for some people out there when they look at and they believe in the decentralization of crypto. And that's one of the most attractive parts of this industry to them. What do you say to that-- some of the critics out there that are saying, hey, you're simply getting a bit too big or you're getting a little bit too large here for this space, for just to have FTX to control?

SAM BANKMAN-FRIED: Yeah, you know, my basic response is, look, a lot of these deals, a lot of these bailouts, we reached out to everyone we could in the industry and said, hey, do you want to come in this with us? Do you want to do it yourself? Like, we'd love someone else to take this on.

And we don't want to be the only ones doing this. We want this to be a broader industry effort. In the end, the response we got from sort of other investors was basically, wait a minute, some of these companies look like they might have some financial troubles. Like, yes, that's correct. That's why they need help right now. Like, I don't know what you were expecting.

But most people just didn't want to move on it because of that. It wasn't what they viewed their role in the ecosystem to be. They wanted to do, like, really safe, sound, high upside investments, and not sort of, like, investments that might lose.

And so we would love there to be more people involved in this. I think that would be great. We'd love other people to step up. That sort of didn't happen very much. And we think the single most important thing is that we do backstop the industry, and that is paramount, and we'll do what it takes to do that. But yeah, ideally, other people would be joining in that with us.

RACHELLE AKUFFO: So, Sam, at least for right now, you do seem to be considered the bank of last resort for a lot of these struggling crypto companies. But how long can that last? How long can you keep bailing out some of these companies in terms of how much funding there is available to really keep propping the industry up?

SAM BANKMAN-FRIED: Yeah. It's a good question. We obviously have to be conscious of that, right? And sometimes when we end up passing on one of these-- when we end up deciding there's not really much we can do, a lot of the context often is we know we don't have infinite ammo, right? We have to be, like, smart about how we use it, and we don't want to flush billions down the drain on one hopeless endeavor.

You know, like, a few billion is ballpark the amount that we have to operate with here. And so we can't bail out an infinite amount here, but we can do a non-trivial amount. We have done some. And we're making sure to keep enough in reserve that we could do more if there came a point where it was really valuable, and important, and/or urgent to do so.

But yeah, it's not infinite. And we would really love other people to come in and sort of help add to this pool of resources.

DAVID HOLLERITH: And, Sam, obviously, it's a huge week in business. We have big tech earnings, the FOMC, and then, obviously, the GDP coming out. And I'm just curious-- in terms of what seems like the most impactful thing for the crypto market, what are you paying attention to this week?

SAM BANKMAN-FRIED: It's a good question. And part of the answer, honestly, is that things have become pretty correlated in a lot of ways. And I don't necessarily want to say that's a great thing, but it is, I think, a true thing. And more specifically on that, we've seen the market get to a position where, really, what's driving all of this is expectations about future inflation or lack thereof, right?

And when you see market movements, a lot of what's happening is that there's been a shift in sentiment about whether monetary supplies may be increasing or decreasing. And that's all coming from how will the Fed respond to these numbers coming out. So there's a first order impact of how are earnings, and that will matter.

But what's going to matter much more, frankly, is the read-through from those earnings, and from FOMC, and other things, to expectations about whether fiscal and monetary policy is going to continue tightening or is going to start signaling that it has done everything it needs to do and that they're in a more stable place going forward. That's what I'm looking for the most is the Fed's reaction and, frankly, Congress' reaction to these earnings, rather than the earnings themselves.

SEANA SMITH: So, Sam, say, tomorrow we do get a 75-basis point hike-- that's largely what is expected on the street-- but inflation doesn't get under control and the Fed is forced to be a bit more aggressive than we maybe initially thought in the fall. What does that mean for crypto?

SAM BANKMAN-FRIED: I mean, that's going to be a decrease in all risk asset prices, including crypto, most likely-- obviously not investment advice, and who knows for sure exactly what's going to happen. But my strong suspicion there is that you're going to look at everything that's being priced versus the US dollar right now, and that includes crypto, that also includes stocks.

And you're going to see those prices fall versus the dollar. Or, really, what you're going to see is the dollar rise against risk asset prices on the expectation that monetary supply will further tighten because of the Fed feeling like they have to further reduce monetary supply in response to persistent inflation. On the flip side, if you see inflation look like it's starting to fall, you may see the feds start to back off a little bit and say that they don't need to tighten more. That would signal a relative increase in monetary supply, decrease in the value of the dollar, and increase in risk asset prices, including crypto.

DAVID HOLLERITH: Yeah. On that note, just outside of the macro, you know, cryptocurrency-- for a lot of cryptocurrency advocates and investors, they want to see more usage, obviously, of it-- not just necessarily of Bitcoin not just trading like a tech stock or something like that-- so you know, what kind of events are you paying attention to in the near future? I mean, the Ethereum merge seems like an obvious one-- but where you sit?

SAM BANKMAN-FRIED: Yeah. It's a really good point. And right now, we're seeing high correlations because a lot of what's happening is things coming out of the Fed is information about expected interest rates and US dollar supply. And those are dollar moves. But things that are going to be most important long-term are the underlying technology and use cases, and what's sort of, like, biggest and most important there?

I think basically what we're looking at is, where is this going to see adoption first? I think the ETH merge is going to matter. I think more generally, blockchain scaling matters a lot, right? Who are the fastest blockchains succeeding getting to a million transactions per second? That's going to be key thing to watch.

Because if they do, they're at the point where they could support global payments networks, global social media networks, global markets. If they fail to scale, that's going to limit the amount of adoption that they could get. That's going to be one thing. And then whether we start to see enough adoption that payments could plausibly happen over it, that both the buyer and the seller in a transaction might be using crypto, that's the second thing.

And the third thing that I'll say is regulatory clarity in the United States-- huge, huge thing for the industry, huge thing for protecting customers, and also a huge thing for allowing the industry to move onshore. And I expect updates on that over the next six months as well, and I'm optimistic about that.

RACHELLE AKUFFO: Certainly lots to watch-- and hopefully some of those transaction fees end up going down as well. A big thank you to Sam Bankman-Fried there and our very own Dave Hollerith-- thank you both so much.