A recent leak of FTX's financial documents gave a glimpse into the substantial growth the Bahamas-registered digital asset exchange encountered throughout 2021.
According to figures seen by CNBC, chief executive officer Sam Bankman-Fried's three-year-old baby grew its revenues from under US$90mln in 2020 to over a billion in 2021, an incredible growth rate of 1,000%.
Net income for 2021 came in at US$388mln with profit margin of 27%, while cash reserves at the end of the year were cited as US$2.5bln.
It was not disclosed if cash reserves take into account custodially held user assets, as if the case with publicly listed crypto exchange Coinbase.
Bankman-Fried (also known as SBF) became a central figure in the crypto sector after offering lines of credit to almost every distressed enterprise in the recent crypto winter.
On top of that, SBF has transformed FTX into one of the most acquisitive companies in crypto, adding no less than 15 companies from Zurich to Australia to its portfolio.
All the while, FTX barely has a presence in North America due to regulatory roadblocks; its US business, which is operated through parent company West Realms Shires, accounted for less than 5% of total revenues in the year.
The company brought in $270mln in revenue in the first quarter of 2022, and is expected to generate $1.1bn in revenue in 2022, according to CNBC's report.
Is Coinbase a warning sign?Despite the bullish figures for 2021, FTX's current financial position is not known.
With the market experiencing a crushing bear run that saw almost all crypto and crypto-exposed companies suffering huge losses, it is doubtful that FTX remains in such a strong position.
Take NASDAQ-listed Coinbase as an example: The US-based crypto exchange saw net income of US$3.6bn in 2021; fast forward to the 2022 interim period and Coinbase has bled over one billion dollars in net losses so far.
While FTX and Coinbase have different jurisdictional profiles – Coinbase in the US and FTX anywhere else – their customer profiles are similar.
The leaked document suggests sophisticated derivatives traders comprise the majority of FTX's customer base, generating two thirds of total revenues.
Coinbase has a similarly sophisticated customer base, a fact that failed to cushion the company against the heavy losses recently sustained.
Curb Your EnthusiasmFTX's Super Bowl advertisement featuring Larry David, TV spots featuring Shaquille O'Neal, Giselle Bündchen and Tom Brady, and naming rights to Miami's NBA arena evidently came at a cost of 15% of revenues.
Not content there, the leak suggested a further US$900mln advertising spend is pipped for the years ahead.
FDIC wrist slapIn other recent FTX news, the US Federal Deposit Insurance Corporation (FDIC) hit the platform with a cease-and-desist order over "false and misleading statements" that suggested its assets were FDIC-insured.
In a letter sent to FTX US president Brett Harrison and chief regulatory officer Dan Friedberg, the regulator accused the former of of stating in a now-deleted Tweet: "Direct deposit from employers to FTX US are stored in individually FDIC-insured bank accounts in the users' names" while also stating that "stocks are held in FDIC-insured and SIPC-insured brokerage accounts".
In reality, FTX US is not covered by FDIC, nor does FDIC insure stocks of cryptocurrencies.
Rather, the bank where FTX holds its cash is, thus user funds are only protected should the bank become insolvent, not FTX itself.
SBF was quick to apologise, but this is not actually the first instance of misleading FDIC claims made by a cryptocurrency platform.
Bankrupt crypto lender Voyager Digital (CSE:VYGR, OTCQX:VYGVF) made explicit claims that it was FDIC insured despite its customer agreement stating elsewise.
Hey, we all make mistakes.