An end is looming for a company that until last week was considered a cornerstone of crypto trading. It concerns crypto exchange FTX, on which consumers trade in crypto coins, and the related trading house Alameda Research.
A rescue mission failed on Wednesday. FTX needs billions of dollars fast as consumers rush to withdraw their balances.
The crypto exchange has been in the news a lot in recent days. The crypto market then panicked, a trader told the British business newspaper Financial Times. “All hell has broken loose.” Bitcoin, the most well-known crypto currency, fell to $16,700 this week, the lowest level since the end of 2020.
Traders fear the consequences of a possible collapse of FTX, one of the largest cryptocurrency trading platforms in the world. Sam Bankman-Fried (30), who founded Alameda in 2017, also started FTX two years later and grew both companies into major players in crypto trading, reported Thursday that “all options are still open”.
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The American crypto billionaire, son of two law professors at Stanford University, thought he had secured the help of major competitor Binance. But that rescue disappeared just as quickly on Wednesday as it had agreed on Tuesday.
Binance announced Wednesday evening that it would refrain from taking over FTX, after due diligence and after reports that two American stock exchange regulators want to conduct further investigations into FTX. The crypto exchange is said to have been careless in the management of customer assets, among other things.
Intertwined
FTX’s recent troubles started last Tuesday with a critical analyst report. The US agency CoinDesk released information from a confidential document that would show that Alameda Research had inflated its balance by billions, via its own FTX crypto coin.
Against $8 billion in liabilities, that balance sheet contained a corresponding amount in FTX cryptocurrencies. However, if those were to fall in value, Bankman-Fried’s company would be unable to meet its financial obligations.
Sunday saw the second blow – and possible death blow – for FTX. Changpeng Zhao, crypto billionaire and owner of competitor Binance, reported that his company would divest all investments in FTX’s own cryptocurrencies as soon as possible. A ‘bank run’ followed; within 72 hours, investors withdrew $6 billion from FTX. The value of the FTX coin fell 70 percent.
Investment company Sequoia Capital, a well-known name in Silicon Valley, has now reported that it has downgraded its stake in FTX to zero. Sequoia Capital had invested $213 million in the crypto exchange in several investment rounds.
According to the fund, FTX had a billion dollars in revenue and a quarter of a billion gross profit in 2021. The latest investment round, in January, valued the crypto company at $32 billion. Funders included Japan’s Softbank, America’s BlackRock, and Canada’s Ontario Teachers’ Pensions Plan.
No consumer protection
The crypto exchange’s website – also available in Dutch – stated on Thursday morning: “FTX cannot currently process withdrawals. We strongly advise against depositing. The onboarding of new customers has been suspended until further notice.”
It is unclear to what extent FTX can return credits from customers who want to cancel in the coming days. There is a chance that many investors have lost their stake and that there is little they can do about it.
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The situation illustrates the lack of protection that crypto users have. The supervision of, for example, De Nederlandsche Bank (DNB) on crypto providers is limited, DNB stated on Monday. There are now only regulations aimed at combating money laundering, financing terrorism with cryptos and violations of the sanctions law.
In 2024, a new European directive is likely to come into effect to better protect crypto consumers. According to DNB, approximately 2 million people in the Netherlands invest in cryptos.