From $26bn to none: FTX saga weighs on crypto viability
Upbeat investors in cryptocurrencies have suffered a painful collision with reality after Sam Bankman-Fried’s FTX filed for bankruptcy.
The entire $16bn fortune of former FTX co-founder Bankman-Fried has been wiped out, one of history’s greatestever destructions of wealth.
The downfall of his crypto empire — which filed for bankruptcy last Friday along with his resignation — means assets owned by the mogul have become just worthless.
At the peak, the 30-year-old was worth $26bn, and he was still worth almost $16bn at the start of the week.
The Bloomberg Billionaires Index now values FTX’s US business — of which Bankman-Fried owns about 70% — at $1 because of a potential trading halt, from $8bn in a January fundraising round.
The saga that has shaken the crypto world began with a rumour on November 2 and culminated on Friday with FTX filing for US bankruptcy court protection from creditors and Bankman-Fried resigning as chief executive in the industry’s highest-profile collapse.
US regulators are now investigating Bankman-Fried and FTX.com for potential violation of rules following the crypto exchange’s sudden collapse, which marks yet another crisis of confidence for the cryptocurrency industry.
Bankman-Fried was also interviewed by Bahamian police and regulators on Saturday as the authorities in the country investigate whether there was any criminal misconduct in FTX’s collapse.
The firm is registered in the Bahamas.
FTX’s liquidity crunch appears to have been triggered in part by a report on CoinDesk last week detailing close ties between FTX and Alameda Research, the trading house Bankman-Fried founded and in which he is a majority owner.
According to a Wall Street Journal report, FTX lent more than half of its customer assets to Alameda to fund risky bets. Bankman-Fried says FTX now faces a shortfall of up to $8bn.
Even before the FTX crash, institutional investors were souring on cryptocurrencies. The sudden downfall of FTX. com may have permanently damaged their prospects of being included in mainstream portfolios.
While plenty of industry die-hards remain, many professional money managers are saying the case for crypto as a portfolio diversifier or digital gold has been debunked. The losses are too great and the market structure is too risky, they say.
The implosions and scandals of the past few months have laid waste to the key arguments of crypto boosters, and all but obliterated the notion of Bitcoin as safe haven in turbulent times.
But none of those events – from the TerraUSD collapse to the Celsius bankruptcy — were as damning as the revelation that even FTX, until recently considered one of the most bluechip names in crypto, was unsound.
The FTX collapse is “raising questions on the viability of the crypto ecosystem,” said Salman Ahmed, chief investment strategist at Fidelity International, which oversees $646bn from London. “It was always tough to make a case for including crypto, but the set-up has come under more pressure.”
Crypto markets have lost some $2tn in market value over the last year as the Federal Reserve has removed liquidity and markets reprice financial assets.
Even as other crypto firms ran into trouble, Bankman-Fried insisted that FTX was solid. Last Thursday he acknowledged in a Twitter post that he was wrong.
The cryptoverse is hyped for its decentralised domain. As for FTX, however, so much hope and responsibility was placed on one individual.
For sure, it goes against everything that crypto is supposed to represent.
At the peak, 30-year-old Sam BankmanFried was worth $26bn