Curious, SBF had started looking into crypto—and almost immediately noticed something strange. Bitcoin was trading at a higher price in Japan and Korea than it was in the U.S. In theory, this should never happen because it represents a riskless profit opportunity—in other words, a free lunch. One simply buys Bitcoin at the lower price, sells it at the higher price, and pockets the difference. Jane Street built an empire on high-frequency trades that took advantage of fraction-of-a-cent price differences. But here was Bitcoin, trading at around $15,000 in South Korea: an unheard-of 50 percent price premium.
After SBF’s fall, Twitter speculation says this is dubious.
This is because the cause of the Kimchi premium was strict legal capital controls, and the liquidity was orders of magnitude too small to produce the wealth in SBF later used. At best, SBF was actively breaking laws by this trade. The amount of money he could make may have been too small to justify the narratives around his early success.
Do you have any comments on the above?
Jaan Tallinn investment
Tallinn later ended up funding SBF with $50M.
What would you say to the speculation that it was this funding, and not the Kimchi arb , that really launched SBF’s career?
If this is mostly true, the takeaway is that there’s little cleverness or competency being expressed here here?
It seems like power, money and access led to SBF’s success. This theme would fit with SBF’s later behavior, with bluffing and overaweing spend.
That tradition seems hollow and bad, maybe contagious to the things that SBF created or touched.
This could be useful in some way? It seems like the vector EA or EA PR could take, could counter this.
I don’t mind sharing a bit about this. SBF desperately wanted to do the Korea arb, and we spent quite a bit of time coming up with any number of outlandish tactics that might enable us to do so, but we were never able to actually figure it out. The capital controls worked. The best we could do was predict which direction the premium would go and trade into KRW and then back out of it accordingly.
Japan was different. We were able to get a Japanese entity set up, and we did successfully trade on the Japan arb. As far as I know we didn’t break any laws in doing so, but I wasn’t directly involved in the operational side of it. My recollection is that we made something like 10-30 million dollars (~90%CI) off of that arb in total, but I’m not at all confident on the exact amount.
Is that what created his early wealth, though? Not really. Before we all left, pretty much all of that profit had been lost to a series of bad trades and mismanagement of assets. Examples included some number of millions lost to a large directional bet on ETH (that Sam made directly counter to the predictions of our best event trader), a few million more on a large OTC trade in some illiquid shitcoin that crashed long before we could get out of it, another couple million in a series of XRP transfers that nobody noticed had never arrived, and that had fallen in value by something like 90% when they finally showed up much later, and various other random small things like a junior trader accidentally transferring half a million dollars of USDT to a BTC address (or something like that) due to a complete lack of safeguards on transfers, etc. Not to mention absurd levels of expenditures, e.g. an AWS bill that at one point reached about a quarter million dollars per month.
My knowledge of the story ends when we left, and my recollection is that at that point the Japan arb had long been closed and most of our profits from it had been squandered. I don’t know how he achieved his later success, but if I were to guess, I’d say it probably has a lot more to do with setting up FTX, launching highly predatory instruments like leveraged ETF tokens on it, and doing similarly shady stuff to the things that brought it all crashing down, but during a bull market that made all of those risks pay off. That’s entirely guesswork though, I have no inside knowledge about anything that happened after April 2018.
Note: All of this is purely from memory, I have not cross-checked it with anyone else who was there, and it could be substantially wrong in the details. It has been a long time, and I spent most of that time trying to forget all about it. I’m sharing this because I believe the broad strokes of it to be accurate, but please do not update too strongly from it, nor quote it without mentioning this disclaimer.
Thank you for sharing, I can understand why you might be feeling burnt out!! I’ve been in a workplace environment that reminds me of this, and especially if you care about the people and projects there...it’s painful.
Fair. Sorry to hear that, I hope you can go back to ignoring the situation soon!
Can you answer two questions related to the source of SBF’s early business wealth?
Were the Kimchi arb returns real?
As you know, the “Kimchi premium” was this difference in BTC price between Korea (Japan?) and the rest of the world.
The narrative is that SBF arbed this price difference to make many millions and create his early wealth.
The Sequoia puff piece makes this cute story:
After SBF’s fall, Twitter speculation says this is dubious.
This is because the cause of the Kimchi premium was strict legal capital controls, and the liquidity was orders of magnitude too small to produce the wealth in SBF later used. At best, SBF was actively breaking laws by this trade. The amount of money he could make may have been too small to justify the narratives around his early success.
Do you have any comments on the above?
Jaan Tallinn investment
Tallinn later ended up funding SBF with $50M.
What would you say to the speculation that it was this funding, and not the Kimchi arb , that really launched SBF’s career?
If this is mostly true, the takeaway is that there’s little cleverness or competency being expressed here here?
It seems like power, money and access led to SBF’s success. This theme would fit with SBF’s later behavior, with bluffing and overaweing spend.
That tradition seems hollow and bad, maybe contagious to the things that SBF created or touched.
This could be useful in some way? It seems like the vector EA or EA PR could take, could counter this.
I don’t mind sharing a bit about this. SBF desperately wanted to do the Korea arb, and we spent quite a bit of time coming up with any number of outlandish tactics that might enable us to do so, but we were never able to actually figure it out. The capital controls worked. The best we could do was predict which direction the premium would go and trade into KRW and then back out of it accordingly.
Japan was different. We were able to get a Japanese entity set up, and we did successfully trade on the Japan arb. As far as I know we didn’t break any laws in doing so, but I wasn’t directly involved in the operational side of it. My recollection is that we made something like 10-30 million dollars (~90%CI) off of that arb in total, but I’m not at all confident on the exact amount.
Is that what created his early wealth, though? Not really. Before we all left, pretty much all of that profit had been lost to a series of bad trades and mismanagement of assets. Examples included some number of millions lost to a large directional bet on ETH (that Sam made directly counter to the predictions of our best event trader), a few million more on a large OTC trade in some illiquid shitcoin that crashed long before we could get out of it, another couple million in a series of XRP transfers that nobody noticed had never arrived, and that had fallen in value by something like 90% when they finally showed up much later, and various other random small things like a junior trader accidentally transferring half a million dollars of USDT to a BTC address (or something like that) due to a complete lack of safeguards on transfers, etc. Not to mention absurd levels of expenditures, e.g. an AWS bill that at one point reached about a quarter million dollars per month.
My knowledge of the story ends when we left, and my recollection is that at that point the Japan arb had long been closed and most of our profits from it had been squandered. I don’t know how he achieved his later success, but if I were to guess, I’d say it probably has a lot more to do with setting up FTX, launching highly predatory instruments like leveraged ETF tokens on it, and doing similarly shady stuff to the things that brought it all crashing down, but during a bull market that made all of those risks pay off. That’s entirely guesswork though, I have no inside knowledge about anything that happened after April 2018.
Note: All of this is purely from memory, I have not cross-checked it with anyone else who was there, and it could be substantially wrong in the details. It has been a long time, and I spent most of that time trying to forget all about it. I’m sharing this because I believe the broad strokes of it to be accurate, but please do not update too strongly from it, nor quote it without mentioning this disclaimer.
What about the GBTC arb trade? Did Alameda get into that during your time there?
Good question, but tbh I just don’t remember the answer.
Thank you for sharing, I can understand why you might be feeling burnt out!! I’ve been in a workplace environment that reminds me of this, and especially if you care about the people and projects there...it’s painful.