FTX's stunning collapse is not like Theranos, says venture capitalist and crypto bull Tim Draper: 'This is for people who are ahead of their skis'

Tim Draper, founder and managing partner of Draper Associates and Draper University, backed away from comparing the stunning implosion of crypto trading platform FTX to the notorious biotech startup Theranos, speaking to MarketWatch.

“It’s not like Theranos,” he said. In a phone interview Friday, Draper said he wasn’t aware of anyone really comparing the fall of struggling FTX, which filed for bankruptcy protection Friday, to Theranos.

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

However, some make similar comparisons, including Galaxy Digital

CEO Mike Novogratz in an interview with CNBC: “You know, we basically have a Theranos-like situation,” he said on the Business Network on Thursday.

“I’m angry,” Novogratz said, referring to how FTX’s fall hurts confidence in the nascent crypto market, with bitcoin
the progenitor of the current crypto, formed after the financial crisis of 2008-2009.

Theranos founder Elizabeth Holmes became famous thanks to the belief that she invented a ground-breaking advance 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 revealed that such technology did not exist. She was convicted of fraud in January 2022

For his part, Bankman-Fried, 30, announced his resignation as head of FTX on Friday. SEC and DOJ are investigating the recent FTX implosionalthough Bankman-Fried is not in any legal trouble at this point.

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

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

The speed of its decline is also staggering. His net worth was estimated at $15.6 billion before this week, according to Bloomberg Billionaires Index. But now most 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 control over its business.

The exchange has committed billions of dollars to fund risky bets at its trading subsidiary Alameda Research, using money that customers have deposited with FTX, according to reports.

A spokesman for FTX declined to comment.

“This is about people who have outgrown their skis,” Draper said. He added: “I feel for those who got caught up in this mess.”

The venture capitalist and crypto enthusiast said that he never viewed SBF as the golden boy of crypto and was generally skeptical of platforms that did not offer clear transparency regarding their holdings.

“I was very cautious with DeFi [decentralized finance] and I avoided most of them,” said Draper, who is an investor in trading platform Coinbase Global Inc.

and Ledger.

“You’re better 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

and Bitcoin, swoon as FTX drama unfolds. The stock market was briefly lower on Tuesday with the Dow Jones Industrial Average

losing more than 600 points on Tuesday, ahead of the broader market — including the S&P 500

— bounced back on Thursday, boasting a huge 1,200-point rally.

Further reading on FTX:

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