FTX on brink of collapse after Binance abandons rescue
FTX is on the brink of collapse as chief Sam Bankman-Fried races to secure billions of dollars to salvage his empire after Binance ditched an eleventh-hour rescue of one of the world’s biggest crypto exchanges.
Venture capital firm Sequoia Capital said it would mark down its $214mn investment in FTX to zero after a run on the exchange in recent days blew a massive hole in its balance sheet and cast serious doubts over its survival.
“In recent days, a liquidity crunch has created solvency risk for FTX,” Sequoia said in a note on Wednesday to investors in its fund.
Bitcoin, the largest cryptocurrency and a barometer of confidence in the sector, tumbled as low as $15,700 before steadying at $16,600, down 10 per cent from Wednesday morning. Investors and traders fear the collapse of FTX and Alameda will trigger another wave of market panic and losses for those exposed to the firms via lending and trading relationships.
“Given the size and interlinkages of both FTX and Alameda Research with other entities of the crypto ecosystem . . . it looks likely that a new cascade of margin calls, deleveraging and crypto company [and] platform failures is starting similar to what we saw last May [and] June following the collapse of Terra,” JPMorgan analysts wrote.
Analysts at Moody’s said the spillover from turmoil in the crypto sector to the traditional financial world was likely to be limited.
Fadi Massih, vice-president at Moody’s Investors Service said: “The lack of regulatory oversight and the sector’s overall opacity facilitate risky financial strategies, exposing firms to an environment in which rumours of illiquidity can become self-fulfilling prophecies.”
This story originally appeared on: Financial Times - Author:Richard Waters
