Today is a busy news day as we witnessed the rise and fall of the once high-flying crypto tech startup FTX. It’s like we’re watching the entire crypto industry unravel before our eyes. Once dubbed as the savior of the crypto industry, FTX went from a super unicorn startup to a company now fighting for its existence. In just a matter of days, it won’t be surprising if the company files for bankruptcy just like the bankrupt Voyager Digital.
As we reported a few hours ago, FTX CEO Sam Bankman-Fried told investors that the company is seeking emergency funding to meet withdrawal requests. Bankman-Fried added that FTX faces a liquidity shortfall of up to $8 billion. The revelation came just hours after Binance walked out of the acquisition deal to rescue the second-largest crypto exchange company. Some have called the FTX liquidity crunch the biggest ever crypto fraud ever, even far bigger than MtGOX ever was.
FTX founder and CEO Sam Bankman-Fried first made headlines in 2020 after he donated a whopping $5.2 million to Joe Biden’s campaign, making him the second-biggest donor.
We covered FTX back in September after the crypto exchange startup was in talks to raise up to $1 billion at a $32 billion valuation. The company said at the time it wanted to use some of the fresh capital infusion, on top of the $400 million round, to fuel more deal-making.
The announcement came just two weeks after its venture arm, FTX Ventures, acquired a 30% stake in New York-based global alternative investment firm SkyBridge Capital. FTX Ventures is a multi-stage venture capital firm founded in 2022 by FTX CEO Sam Bankman-Fried.
But in the last five days, FTX has gone from a unicorn startup to a company fighting for its survival. Bloomberg reported Wednesday that Bankman-Fried warned investors will be forced to file for bankruptcy if it doesn’t get the cash infusion. Bloomberg also estimates that FTX is only worth $1 single dollar now down from over $32 billion yesterday.
The demise of FTX started over the weekend after Binance CEO CZ tweeted that his exchange would reduce its exposure to FTX and slowly withdraw billions of its holdings in FTX’s native token, FTT, “due to recent revelations that have come to light.”
A few hours later, investors panicked and started to take their tokens off FTX just as Binance dumps its FTT. According to data from Nansen, mass withdrawals from FTX have accelerated, as investors’ weekly stablecoin outflows from FTX reached a whopping $451 million.
The earlier speculations that FTX is on the verge of insolvency turned out to be true although FTX CEO Sam Bankman-Fried denied the rumor when he said early Monday morning that “FTX is fine. Assets are fine.”
According to a report from CoinDesk, Alameda, which Bloomberg also estimated to be worth only $1, holds $14.6 billion in assets plus $8 billion in liabilities as of June 30. That’s not all. CoinDesk also found that Alameda’s largest asset was about $3.66 billion of “unlocked FTT” and $2.16 billion of “FTT collateral.” This implies that the $5.82 billion in total FTT that Alameda owns is equal to 193% of the total known market cap of FTT, which is about $3 billion, according to data from CoinMarketCap.
With billions of dollars invested in the company, many prominent investors and venture capital firms will lose their money if FTX files for bankruptcy. Courtesy of The Block’s Frank Chaparro, among them, are:
- BlackRock
- Ontario Pension Fund
- Sequoia
- Paradigm
- Tiger Global
- SoftBank
- Circle
- Ribbit
- Alan Howard
- Multicoin
- VanEck
- Temasek
Meanwhile, investors have withdrawn at least $6 from FTX as the crypto exchange continues on the downward spiral, according to a report from Reuters, citing a message to staff by its CEO Sam Bankman-Fried. “On an average day, we have tens of millions of dollars of the net in/outflows. Things were mostly average until this weekend, a few days ago,” Bankman-Fried wrote in the message.
“In the last 72 hours, we’ve had roughly $6b of net withdrawals from FTX,” he wrote, adding that withdrawals at FTX’s main unit, FTX.com, are “effectively paused,” an issue that would be resolved in “the near future.”
In addition, FTX founder and CEO Sam Bankan-Fried is also under SEC investigation relating to the liquidity crisis and handling of customer funds. Bloomberg reported that US regulators are investigating whether FTX.com “properly handled customer funds,” as well as its relationship with other subsidiaries of Sam Bankman-Fried’s crypto empire.
FTX was founded in 2019 by 29-year-old MIT graduate Sam Bankman-Fried and his co-founder Gary Wang. The Bahamas-based crypto exchange FTX offers derivatives products like futures and options as well as spot trading. Once an unknown startup, FTX has become a key player in the crypto space, rivaling the likes of Coinbase and Binance.
