HONG KONG/SINGAPORE/NEW YORK, Nov 10 (Reuters) – FTX chief executive Sam Bankman-Fried on Thursday launched an urgent campaign to raise funds to save his business as the crypto exchange seeks to fill a $8 billion hole in its finances, according to tweets and a note to employees.
Bankman-Fried said he was in talks with “a number of players” in the crypto industry, including Justin Sun who is the founder of the crypto token Tron.
Biggest rival Binance walked away from a bailout of FTX on Wednesday, sending cryptocurrency prices plummeting as hopes of a bailout dwindled. That left Bankman-Fried, 30, who had previously thrown lifelines to other failing digital asset platforms, with options down.
Sun, founder of cryptocurrency network Tron, said in a tweet on Thursday “we are setting up a solution with #FTX to start a way forward,” without giving further details. Sun did not respond to a request for comment.
A spokesperson for FTX declined to provide further details on the talks.
In the memo, seen by Reuters, Bankman-Fried said next week he would “make a raise” to benefit customers and “potential new investors”.
Bankman-Fried, who is also ending his crypto trading company Alameda Research, promised that every penny would go “directly to users” until “we did the right thing”.
Bankman-Fried, who is from California but lives in the Bahamas where FTX is based, told employees on Wednesday that he was exploring all options for his business after the deal with Binance fell apart.
Bloomberg reported that Bankman-Fried told investors that FTX faced a shortfall of up to $8 billion and that the company would have to file for bankruptcy unless it received additional funding.
Meanwhile, a message on FTX’s website stated that it was no longer processing withdrawals or accepting new users. FTX’s shortfall comes after users rushed to withdraw $6 billion worth of crypto tokens from FTX in just 72 hours.
Investors are focused on the unknown scale of customer losses and the impact on sentiment of the latest and perhaps the greatest collapse in an industry that has turned into a minefield for investors.
Crypto asset manager Coinshares said it has $30.3 million in total exposure to FTX.
FTX’s native token, FTT, was down 90% this week and was trying to stabilize around $2.90 – not far above its all-time high of around $1.50. Bitcoin fell below $16,000 for the first time since the end of 2020 overnight and as of 12:10 GMT was trading at $16,310, showing few signs of recovery.
The seeds of FTX’s downfall were sown months earlier, in mistakes made by Bankman-Fried after it intervened to rescue other crypto firms, according to interviews with several people close to Bankman-Fried and communications from FTX and Binance.
Another exchange, OKX, said it was approached earlier in the week by Bankman-Fried, who described $7 billion in liabilities that needed to be covered quickly.
“Even Elon Musk wouldn’t be able to commit to a deal with a $7 billion liability within hours of the negotiations. It was too much for us,” Lennix Lai, chief financial markets officer, told Reuters. OKX.
“(It’s) a big hole to plug,” he added. “The dagger will continue to hang over the crypto market, as long as the outlook for FTX’s fate remains unclear.”
“CRISIS OF CONFIDENCE”
Investors were watching for any signs of contagion spreading beyond the crypto sector. Fadi Massih, vice president of Moody’s Investors Service, said losses “have largely remained contained in the crypto sphere.”
“However, if leverage were to increase significantly again in the crypto-finance system, it could disrupt the banking system, even if banks continue to distance themselves from direct interaction with the crypto-economy,” Massih said in emailed comments.
“A leading exchange failure – it’s on a different level,” said Danny Chong, CEO of decentralized finance firm Tranchess, with potentially wider ramifications than the failure of stablecoin TerraUSD and hedge fund. crypto Three Arrows Capital this year.
“Retail funds, including those from market makers, are still currently with FTX,” he said. “Just when people thought the crypto winter probably wouldn’t last… comes another episode like this.”
The US securities regulator is investigating FTX.com’s handling of client funds and crypto lending activities, according to a source with knowledge of the investigation.
Bloomberg reported that the US Department of Justice is also looking into the turmoil. A DOJ spokesperson declined to comment.
Investors are already canceling funds invested in FTX. Venture capital fund Sequoia Capital reduced $150 million in exposure to zero on Wednesday. The Ontario Teachers’ Pension Plan of Canada, Tiger Global and Japan’s Softbank are also investors in FTX.
Broker Robinhood (HOOD.O) said it had no direct exposure to FTX, but Bankman-Fried has a stake in the company and its shares fell sharply on Tuesday and Wednesday.
Most crypto players remain bullish for the long term, but are preparing for further falls in the near future. Bitcoin’s 20% losses this week are comparable to the drop in June when Three Arrows Capital came under severe strain.
“What makes this new phase … problematic is that the number of entities with stronger balance sheets able to rescue those with low capital and high leverage is decreasing,” JP Morgan analysts said in a note to customers.
“Now that the strength of Alameda Research’s and FTX’s balance sheets are in question just months after being seen as entities with strong balance sheets, it creates a crisis of confidence.”
Reporting by Angus Berwick in New York; Georgina Lee in Hong Kong and Tom Westbrook in Singapore; Elizabeth Howcroft in London; Editing by Megan Davies; Shri Navaratnam and Catherine Evans and Anna Driver
Our standards: The Thomson Reuters Trust Principles.
#FTXs #BankmanFried #talks #funds #Binance #deal #collapses