FTX and Alameda both filed for Bankruptcy under Article 11. Some contagion is already clear with Crypto companies such as BlockFi, Crypto.com and Genesis have now all frozen withdrawals.
As a result of this, many very high profile Funds such as Sequoia and Greyscale, have been very badly hit. No-one is yet clear precisely how events unfolded so rapidly. FTX was a preferred Crypto exchange in Washington, and not only had friends in central government, but also worked closely with The Financial Authorities as well as other Regulatory Bodies in the emerging regulatory framework around the industry for digital financial assets.
FROM THE NEWS:
New FTX Boss, John Ray, Condemns Management of the Crypto Exchange during Sam Bankman-Fried's tenure. The Grayscale fund has expressed concern about GBTC (Grayscale Bitcoin derivative) which is now trading at 46% discount. With Genesis suspending withdrawals and Digital Currency Group (parent company of Genesis) needing to raise $1bn, GBTC appears more volatile than $BTC and $ETH but clear information is unavailable for investors.
Genesis said FTX’s sudden collapse last week “created unprecedented market turmoil, resulting in abnormal withdrawal requests” that exceeded Genesis’ liquidity. As a result, Genesis said it has temporarily suspended redemptions and new loan originations in its lending business Genesis Global Capital, which had some $2.8 billion in loan volume at the end of last quarter; the company offered no time line for the suspension but said it plans to “deliver a plan” for the future of its lending business next week.
Fears of sharp global recession and the worst inflation in more than 40 years have wreaked havoc on the nascent cryptocurrency market this year. The turmoil has claimed nearly $2 trillion in market value.
● Multicoin Capital, one of the top crypto venture firms, told investors in a letter on Thursday that FTX’s collapse will cause additional failures.
● Because of its write down of assets on FTX and the broader drop in crypto, Multicoin said its net performance is down 55% this month.
ARE THERE ANY POSITIVES?
● Despite events surrounding FTX/Alameda, Bitcoin has been holding up well at around $16,000.
● All our funds on FTX are in USDT, so that value remains constant even if Crypto Alts plunge further in value.
● While it remains to be seen if there is further contagion, what is very apparent from the little clarity surrounding events is processes in FTX were generally traceable. This is also manifested in the transparent way in which FTX employers and insiders managed to withdraw their funds to known addresses as well as in exchange for known assets in the Bahamas. These are easy to trace, and therefore, presumably easy to seize.
● Even a known hacker on FTX, he/she started to sell stolen hacked assets on Kraken, who immediately reported these clearly illegal activities to the Financial Regulators. In the words of Kraken “we know the identity of the account holder”.
● Why hasn’t FTX founder Sam Bankman-Fried been arrested? The answer could lie in the fact that he has agreed to co-operate with the Insolvency Office and their Legal Enforcement Team, to help retrieve funds.
CONCLUSIONS
Being in The UK, one can only imagine the consequences if one of the big five banks were to collapse. FTX had a larger market cap than any of these banks. You would expect panic withdrawals and systemic contagion. Liquidity in the Crypto space will be a problem as holders of crypto move their assets off exchanges. We at Blockchain Century will continue to monitor events and update investors with important updates at this concerning time.