Crypto exchange giant FTX files for bankruptcy, hitting investors including SoftBank, Temasek as digital currency market loses US$150 billion in crash
- In its bankruptcy filing, FTX listed more than 130 affiliated companies, 100,00 creditors and assets valued between US$10 billion and US$50 billion
- FTX’s crash prompted some backers to write down their investments, while regulators ramped up calls for stricter oversight of the crypto industry
The embattled cryptocurrency exchange, short billions of dollars, sought bankruptcy protection after the exchange experienced the industry’s equivalent of a bank run.
FTX, the hedge fund Alameda Research and dozens of other affiliated companies filed a Chapter 11 bankruptcy petition in Delaware on Friday. FTX US, which originally was not expected to be included in any financial rescue, was also part of the company’s bankruptcy filing.
A group that can be assumed to have lost nearly everything in the collapse are investors in FTX. They include blue-chip names like the SoftBank Group’s Vision Fund, the Ontario Teachers’ Pension Plan, the Singapore wealth fund Temasek Holdings, hedge fund Tiger Global Management and Lightspeed Venture Partners.
Mom and pop dabblers are taking a simultaneous bath in the crypto market itself. Market bellwether bitcoin plunged about 20 per cent this week, bringing its decline from last year’s record high to about 75 per cent. Ether, the second largest token, and altcoins sunk alongside it. FTX’s FTT token has tumbled 85 per cent in the past week.
The bankrupt digital-asset exchange was hit by a mysterious outflow of about US$662 million in tokens in the past 24 hours, the latest twist in one of the darkest periods for the crypto industry. Customers were subsequently confronted with what Ryne Miller, the general counsel of its US arm, described as “abnormalities with wallet movements.”
FTX’s unravelling is causing ripple effects. Already, companies that backed FTX are writing down their investments. Politicians and regulators are ramping up calls for stricter oversight of the crypto industry.
This crisis has also put pressure on the prices of bitcoin and other digital currencies. The total market value of all digital currencies dropped by about US$150 billion in the last week, according to CoinMarketCap.com.
FTX and Bankman-Fried, as well as his brother, were also early investors in Semafor, the high-profile news start-up run by former BuzzFeed editor-in-chief and New York Times columnist Ben Smith.
Bankman-Fried has other problems as well. The US Department of Justice and the Securities and Exchange Commission were looking into FTX to determine whether any criminal activity or securities offences were committed, a person familiar with the matter said on Thursday. The person could not discuss details of the investigations publicly and spoke to the Associated Press on condition of anonymity.
In its bankruptcy filing, FTX listed more than 130 affiliated companies circled around the globe. The company valued its assets between US$10 billion and US$50 billion, with a similar estimate for its liabilities.
Hong Kong’s digital assets sector braces for fallout from FTX collapse
The company appointed as its new chief executive John Ray III, a long-time bankruptcy litigator who is best known for having to clean up the mess made after the collapse of Enron.
FTX’s bankruptcy is certainly to be one of the most complicated bankruptcy cases in years. The company listed more than 100,000 creditors on its filing, and with all of its customers effectively being creditors because they deposited their funds with FTX, it will take months to sort out who is owed what, bankruptcy lawyers said.
“Unlike a case where there’s (securities insurance in the failure of a brokerage) or where the FDIC [Federal Deposit Insurance Corp] steps in with a bank failure, these customers are totally exposed,” said Daniel Besikof, a partner at Loeb & Loeb who specialises in bankruptcy law.
How Binance, FTX deal rocked the crypto world and then collapsed
The crypto world had hoped that Binance, the world’s largest crypto exchange, might be able to rescue FTX and its depositors. But after Binance took a look at FTX’s books, it concluded that the smaller exchange’s problems were too big to solve and backed out of the deal.
FTX is the latest in a series of cascading disasters that have shaken the crypto sector, now under intense pressure from collapsing prices and circling financial regulators. Its failure is already being felt throughout the crypto universe.
On Thursday, the venture capital fund Sequoia Capital said it was writing down its total investment of nearly US$215 million in FTX.
The cryptocurrency lender BlockFi has announced that it is “not able to do business as usual” and pausing client withdrawals as a result of FTX’s implosion. In a letter posted to its Twitter profile late on Thursday, BlockFi – which was bailed out by Bankman-Fried’s FTX early last summer – said it was “shocked and dismayed by the news regarding FTX and Alameda”.
The company ended by saying any future communications about its status “will be less frequent that what our clients and other stakeholders are used to”.
