FTX’s stunning 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, balked at comparing the stunning implosion of the crypto trading platform FTX to the notorious biotech startup Theranos, in a conversation with MarketWatch.

“It’s not like Theranos,” he said. In a phone interview Friday, Draper said he didn’t know of anyone who had actually compared the fall of beleaguered FTX, which filed for bankruptcy protection on Friday, to Theranos.

FTX founder Sam Bankman-Fried, former CEO of the platform and related companies, faces a shortfall of $ 8 billion, The Wall Street Journal reported.

However, some have drawn such comparisons, including Galaxy Digital BRPHF,
-10.00%
CEO Mike Novogratz in an interview with CNBC: “You know, we basically have a situation that looks like Theranos,” he said in the business network on Thursday.

“I’m furious,” said Novogratz, referring to how FTX capsizing hurt confidence in the nascent crypto market, with bitcoin BTCUSD,
+0.26%,
progenitor of today’s crypto, formed in the wake of the financial crisis of 2008-2009.

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

For his part, Bankman-Fried, 30, announced his resignation from his post as head of FTX on Friday. The SEC and DOJ to investigate FTX’s latest implosionalthough at this point Bankman-Fried is not in any legal trouble.

The collapse comes as some have come to regard Bankman-Fried as a sort of savior to other beleaguered crypto firms earlier this year. SBF, as he is sometimes known, was a member MarketWatch’s list of the 50 most influential people.

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

The rate of decline is also impressive. His net worth was estimated to be $15.6 billion before this week, according to the Bloomberg Billionaires Index. But now most of his fortune is gone, 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 business.

The exchange borrowed billions of dollars to finance risky bets at its affiliate trading firm, Alameda Research, using money deposited by customers at FTX, according to reports.

A FTX spokesman declined to comment.

“It’s about people who are ahead of their skis.” Draper said. He added, “I feel for the people who are caught up in this mess.”

The venture capitalist and crypto enthusiast said that he, for one, has never seen SBF as a crypto golden boy and is widely skeptical of platforms that do not offer clear transparency about their holdings.

“I have been very careful with DeFi [decentralized finance] and have avoided most of them,” said Draper, who is an investor in Coinbase Global Inc.’s COIN trading platform,
+12.84%
and Ledger.

“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 ETHUSD ether,
-0.41%
and bitcoin, has been swooning as the FTX drama has unfolded. The stock market briefly jolted down Tuesday, and the Dow Jones Industrial Average DJIA,
+0.10%
shedding more than 600 points on Tuesday, ahead of the broader market – including the S&P 500 SPX,
+0.92%
– bounded again on Thursday, boasting a tremendous 1,200-point rally.

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