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Alameda Research’s Fall from Grace: A Reminder of Proper Risk Management

• Alameda Research, a trading firm founded by Sam Bankman-Fried, was reportedly insolvent by 2018 Spring with losses reaching up to 65 percent of its assets.
• The losses were caused by Alameda’s BTC arbitrage business drying up and wrong price predictions by its trading bot.
• The crypto bull market of 2021 helped Alameda recover, with it pulling in $1 billion in profits that year before declaring bankruptcy in November 2021.

It was a spectacular fall from grace to grass for Sam Bankman-Fried and his trading firm, Alameda Research. According to a recent Wall Street Journal (WSJ) report, Alameda’s troubles began four years ago when its BTC arbitrage business dried up due to rising transaction costs and a massive reduction in profits. Alameda had been buying BTC at lower prices and selling it in Japan, where the digital asset’s price was higher than everywhere else. This had enabled the company to make up to $30 million in profits.

However, the situation took a turn for the worse when the company’s trading bot made wrong price predictions, causing Alameda to lose lots of money. On top of this, Alameda recorded huge losses following its investments in the ripple payment network. By 2018 Spring, the trading firm’s losses had reached 65 percent of its assets, leaving it with only $30 million worth of assets.

Fortunately, the crypto bull market in 2021 helped Alameda recover, with it pulling in $1 billion in profits that year. However, this recovery was short-lived as the company eventually declared bankruptcy in November 2021.

The fall of Alameda Research is a reminder of the importance of proper risk management, especially in the volatile world of cryptocurrency. Despite Sam Bankman-Fried’s reputation as a successful trader and investor, Alameda’s lack of proper risk management led to its eventual downfall. As the cryptocurrency market continues to grow, it is important for investors to exercise caution and not to overlook the importance of proper risk management.