FTX, once the second-largest cryptocurrency exchange in the world, is worthless, according to one of the company’s early investors.
In a note to partners, venture capital firm Sequoia said it had written off its $150m (£130m) investment in FTX.
“In recent days, a liquidity crisis has created a solvency risk for FTX. The full nature and extent of this risk is not known at this time. Based on our current understanding, we are reducing our investment to $0,” the investors wrote in a post signed Team Sequoia.
Other investors have lost similar sums, including the Ontario Teachers’ Pension Plan, which invested about $400 million in the stock market last year, valuing FTX at $25 billion.
The cryptocurrency market came under pressure after the FTX crisis, with the core digital asset, bitcoin, falling 7.6% in the past 24 hours to $16,775 and the second largest, Ethereum , falling 4.4% to $1,205.
The bank-style “cash crunch,” fueled by a rush in FTX withdrawals, led to a pause in all cash outflows on Tuesday morning. But for the crisis to become a solvency risk, it would mean that the company had invested customer deposits in illiquid assets, forcing it to choose between a precipitous sale at depressed valuations or a complete halt to withdrawals.
In messages sent shortly before FTX plunged into crisis, its owner, Sam Bankman-Fried, insisted that was not the case. “FTX is doing well. Assets are good. FTX has enough to cover all client holdings,” he said in tweets that he has since deleted. “We don’t invest client assets ( even in treasury bills).”
Since then, Bankman-Fried has changed its message, telling investors that the company needs $8 billion to cover withdrawal requests, according to multiple reports.
The sudden crash in value was prompted by leaked documents that implied that Alameda Research, a hedge fund with close ties to FTX through its common owner, Bankman-Fried, was in fact insolvent.
The Alameda accounts were based on a token, FTT, which was issued by FTX and had no value other than that guaranteed by the exchange, according to the documents.
This revelation turned into a crisis when Binance, the largest cryptocurrency exchange, announced that it would sell its own major stake in FTT. The ensuing fire sell dropped the token’s value well below the $22 floor that FTX had pledged to support, and caused the equivalent of a bank run at FTX itself, as customers were rushing to withdraw their deposits faster than the exchange could process them.
The fight between the two exchanges briefly turned into an alliance, as Binance agreed to make a non-binding offer to bail out FTX and merge with him. But Wednesday night, the deal failed.
“As a result of the company’s due diligence, as well as the latest news reports regarding mismanaged client funds and alleged investigations by U.S. agencies, we have decided not to pursue the potential acquisition of FTX.com,” Binance said.
Manage Cookie Consent
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.