The Downfall of the Cryptocurrency Exchange, the Miami Heat, and the Loss of Over $1 Billion Dollars to a Private Investment Company
As investors in the cryptocurrencies market run for cover, the FTX exchange’s downfall is sparking alarm among people who own the digital assets.
FTX filed for reorganization in the US on Friday, a major blow to one of the largest and most powerful players in the industry. Sam Bankman-Fried, the founder of the exchange, resigned as CEO.
“This was one of the most trusted entities in the crypto space, so it will take some time to recover,” said Jay Jog, co-founder of the blockchain startup Sei Labs, which is based in California.
The company was valued at $32 billion in its latest funding round, and had recruited high-profile backers including SoftBank, Tiger Global, Singapore’s Temasek, as well as celebrities like Tom Brady, Gisele Bündchen and Naomi Osaka. The arena where the Miami Heat play is named after it.
The situation is still evolving. One concern, is how it could affect the entire sector, which was worth over $1 trillion in August.
Over the summer, as digital assets tumbled in value, Bankman-Fried put up about $1 billion to bail out firms and shore up assets to try to keep the entire industry afloat. Only a small number of white knights left to rescue FTX and others.
The number of entities with strong balance sheets that can rescue those with low capital and high leverage is falling, according to strategists at JP Morgan.
Traditional investors have also been burned, though they’re reassuring clients they can handle the fallout. The Ontario Teachers’ Pension Plan said that despite uncertainty, losses tied to its $95 million investment would have a “limited impact,” given the stake represents less than 0.05% of total assets.
Binance’s White Knight: The Future of Cryptocurrencies in a Climate of Pain, Pain and Worst (with Donald) Bukele
Changpeng Zhao, the CEO of Binance, tweeted that he had been texting with Nayib Bukele, the president of El Salvador, which has gone all in on bitcoin. “We don’t have any Bitcoin in FTX and we never had any business with them,” Zhao relayed from Bukele. “Thank God!”
But as spooked investors pull funds from crypto, more pain could arrive. JPMorgan believes bitcoin could fall to $13,000, a decline of nearly 22% from where it is now. Fok thinks the digital coin could drop to a low not seen since 2020.
In that climate, the “crypto winter” is poised to get even worse, especially as fears about the broader economic backdrop continue to erode the appetite for risky assets.
This is going to be bad for the industry in the short term. But he doesn’t think it will “end things” entirely, and is hopeful that it could bolster interest in his business, which focuses on building more transparent, decentralized crypto exchanges.
“It reinforces the view that any sort of financial enterprise needs extensive regulation,” said James Malcolm, head of foreign exchange strategy and crypto research at UBS. “Probably by 2024, the whole world will look much more coherent and watertight.”
“We’ve been set back a few years,” he said. It’s good that regulators will scrutinize this industry much harder than before, it’s probably a good thing.
In a Super Bowl ad for FTX, Larry David predicted that the exchange wouldn’t make it. The ad shows David’s character throughout history, naysaying humanity’s greatest inventions, including the wheel, the lightbulb, coffee and democracy.
Rival Binance had said it would explore an FTX bailout earlier this week but almost immediately backtracked after the company said FTX was essentially beyond saving.
Bankman-Fried resigned. He had been one of the faces of the crypto industry, amassing a fortune once totaling $25 billion that has since vanished. He was viewed as the crypto world’s white knight, stepping in to rescue struggling companies earlier this year. FTX, backed by elite investors such as BlackRock and Sequoia Capital, went from being a small exchange to becoming one of the largest in the world.