Some observers believe that the potential collapse of FTX will be the death knell of crypto markets. The lack of regulation, a failure of management, and the destruction of investor trust have impacted the entire crypto industry. FTX CEO Sam Bankman-Fried, once the darling of regulators and investors alike, has fallen far short of expectations, dragging down platforms that may be operating in a more prudent manner.
Earlier this month, FTX was the second-largest crypto exchange in the world. Today, it is not even in the top 100. Binance, once the white knight poised to backstop FTX, walked away after it took a look at the books, ominously claiming there was a possibility of mishandled funds.
It has been widely reported that Bankman-Fried is looking for around $8 billion to plug the hole in FTX after a bank run-type rush for the exits caused by a liquidity problem that has now morphed into a solvency concern. It was reported earlier this morning that Bankman-Fried has called Kraken for help as a “potential rescue partner” – the same report by Reuters indicated that Alameda, a trading firm owned by Bankman-Fried, owes FTX a whopping $10 billion. Bankman-Fried has Tweeted that “Alameda Research is winding down trading.”
Venture capital firm Sequoia, an investor in FTX, has distributed a letter to its LPs announcing a write-down of its investment to zero – a spectacular loss on a firm once valued at $32 billion. Sequoia stated:
“At the time of our investment in FTX, we ran a rigorous diligence process. In 2021, the year of our investment, FTX generated approximately $1 billion in revenue and more than $250 million in operating income…”
The VC group said that as the “full nature and extent of this risk is not known at this time, based on our current understanding, we are marking our investment down to $0.”
After a quiet period, Bankman-Fried has re-emerged today to apologize for the mess that he has caused, adding that he “fucked up” and “should have done better.”
22) And, finally:
I sincerely apologize.
We'll keep sharing updates as we have them.
— SBF (@SBF_FTX) November 10, 2022
Bankman-Fried said that going forward, if FTX still exists, he will provide “radical transparency,” and if people do not want him around, he is gone.
While promising ongoing updates as they hunt for a huge capital injection, Bankman-Fried alluded to the sequence of events that he believes were not happenstance – stating, “well played, you won.”
Meanwhile, crypto-twitter is in pile-on mode. There is blood in the water, and the sharks are circling.
Wait till the end. 👇#FTX CEO has lost the plot IMO. This guy does not deserve what crypto has to offer.
I'd be very careful about anything this guy touches.
He should not do interviews either. 😅 pic.twitter.com/a9zs0Jw8va
— Duo Nine ⚡ discord.gg/ycc (@DU09BTC) October 29, 2022
CNBC is reporting that the US Department of Justice is investigating FTX and its CEO. Not good news, as criminal charges could follow. It has already been reported that rumblings of a regulatory inquiry that is in process. WSJ.com and others have reported that FTX tapped into customer funds to make risky bets. This goes beyond optics into the realm of allegations of malfeasance.
The collateral damage is incalculable right now. JP Morgan is predicting that there will be a cascade of margin calls over the coming weeks, adding their expectation that Bitcoin may land at $13K. Crypto markets have already dropped to around $800 million – down from their all-time high of $3 trillion. The dust has yet to settle.
The crypto-sphere has experienced more than its fair share of very public disasters, frauds, hacks, and plenty of hubris. The FTX – Sam Bankman Fried odyssey tops them all ( at least so far). With the House of Representatives expected to be in control of Republicans, a more crypto-friendly group of policymakers, this train wreck could not have come at a worse time. While Bankman-Fried shoulders most of the blame, the broader industry has ignored the warnings for far too long. Years ago, the leaders in crypto should have established an SRO [self-regulatory organization], requiring audits, transparency, and operational excellence. Instead, it opted for the fast dollar, to the detriment of all. Now any industry action may simply be too little, too late.