A formerly leading digital currency exchange is in such dire straits that it needs an $8 billion cash infusion or it faces imminent bankruptcy, sources claim.
At the heart of a debacle that caused Bitcoin and Ethereum, the two leading digital currencies, to devalue by as much as 30 percent in just two days, is the FTX exchange, its CEO and founder Sam Bankman-Fried, and his trading firm Alameda Research.
While a crash first occurred when news that FTX was in such a crisis that it was forced to ask rival exchange Binance to purchase it on Nov. 8, markets were gifted with a bandaid after Binance CEO Zhao Changpeng announced it had signed a “non-binding letter of intent” to purchase FTX, subject to corporate due diligence.
Nonetheless, while during the overnight trading session markets fell close to another 10 percent, a potential recovery rally during the New York Stock Exchange trading session was quashed when the deal immediately collapsed Nov. 9.
The official Binance Twitter account stated, “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of [FTX].”
The optics only became worse as Bankman-Fried had to tell investors during a same day conference call that the exchange was missing $8 billion and needed at least $4 billion just to stay alive, Bloomberg reported according to “a person with direct knowledge of the matter.”
For the 30-year-old billionaire Bankman-Fried, the concession amounts to a frightening fall from grace.
FTX had made enough of an impact on the public that it had an advertising deal with Major League Baseball, which saw its logo affixed to the vest of umpires. The company was also able to purchase a commercial during the 2022 Super Bowl.
“SBF,” as he’s known online, was also recognized by some of the most powerful globalists in the world, sharing the stage with no less than Bill Clinton and Tony Blair during a digital currency conference held in the Bahamas in May of this year.
As recently as September of this year, Bankman-Fried was featured on the cover of Fortune Magazine with the caption “The Next Warren Buffett?”
Bloomberg also noted, “FTX has a prominent list of backers such as Sequoia Capital, BlackRock Inc., Tiger Global Management and SoftBank Group Corp.,” adding that “Sequoia wrote down the full value of its holdings in FTX.com and FTX.us, an indication that the firm sees no clear path to recouping its investment.”
A secondary Nov. 9 article by Bloomberg focusing on the downfall of SBF and his previously-estimated $26 billion fortune also revealed, “…Softbank Vision Fund, Singapore wealth fund Temasek and Ontario Teachers’ Pension Plan, who sunk $400 million into the exchange at a $32 billion valuation in January.”
According to the article, much of Bankman-Fried’s estimated fortune relied on a 53 percent stake in FTX, which was estimated at $6.2 billion before the market wipeout.
In just two days, the FTT digital currency token, which FTX prints and manages and was used as a heavy component of Alameda Research’s balance sheet despite having little utility beyond serving as a loyalty rewards program on the platform, fell from a market price of roughly $25 to $2.5.
Moreover, because Bankman-Fried purchased a 7.6 percent stake in online regulated equities market brokerage Robinhood, the news of the Binance takeover and its subsequent crash resulted in a wipeout of almost 3.5 months of gains as Robinhood stock fell from $12 to $8.5.
Bloomberg somberly noted, “The Bloomberg wealth index assumes existing FTX investors, including Bankman-Fried, will be completely wiped out by Binance’s bailout, and that the root of the exchange’s problems stemmed from Alameda. As a result, both FTX and Alameda are given a $1 value.”
But there’s more at stake for Bankman-Fried and Alameda’s executives than fiscal losses. In a third same day article on the topic, Bloomberg reported that the Securities and Exchange Commission along with the Department of Treasury have deployed attorneys to investigate the situation.
Perhaps the larger reason for the government’s attention is that the shenanigans are not limited to the “wild west” of digital currencies.
Bloomberg reported also on Nov. 9 that strategists from JP Morgan & Chase had warned clients in a note that there was likely a “cascade of margin calls” behind the scenes that may lead to more skeletons falling out of the closet.
A margin call is when a trade, often conducted on leverage using collateralized funds, becomes more underwater than the capital deposited, leading to forced buying or forced selling of the position and the loss of a client’s capital.
“What makes this new phase of crypto deleveraging induced by the apparent collapse of Alameda Research and FTX more problematic is that the number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking,” the bank stated.