The abrupt implosion of the cryptocurrency exchange FTX, which was valued at $32 billion in February, resonated like an earthquake in the crypto industry and business circles.
Overnight, many private and institutional investors lost their money. No doubt it will take many months to assess the damage caused and compile the casualty list.
Crypto lender BlockFI is about to file for Chapter 11 bankruptcy. The company had been bailed out by FTX and its founder and former CEO Bankman-Fried during the liquidity crisis that hit the industry last summer, following the collapse of sister cryptocurrencies Luna and UST, or TerraUSD.
“We have significant exposure to FTX and related corporate entities, including liabilities that Alameda owes us, assets held on FTX.com, and undrawn amounts of our line of credit with FTX.US,” BlockFi said on Nov. 14.
‘We lost money in general’
Venture capital firm Sequoia Capital said it lost $210 million on FTX, while Japanese firm Softbank has quantified its losses at $100 million.
Another big name in business circles has in turn revealed that it has been affected by this debacle, with FTX filing for bankruptcy on Nov. 11 in the absence of a savior.
“Lost money?” Anthony Scaramucci, the founder of alternative investment firm SkyBridge Capital, was asked at the Bloomberg New Economy Forum in Singapore on Nov. 15.
“I actually didn’t lose the money because Sam [Bankman-Fried] gave me the money,” said Scaramucci, whose nickname is The Mooch.
Last September, FTX had acquired 30% of SkyBridge Capital.
The two parties have not provided the financial terms of the transaction.
At the time, SkyBridge, which started out as a traditional hedge fund before diving into cryptocurrencies with investments in bitcoin (BTC) and other coins, saw its bets on digital assets turn sour.
SkyBridge had bet that BTC will reach $100,000 per unit. But the drop in the cryptocurrency’s price has undermined this bet, and in particular has left smaller funds, such as Legion Strategies, vulnerable.
The Legion Strategies fund suspended withdrawals by its investors last July.
The investor exodus also affected Skybridge Capital’s flagship fund, Skybridge Multi-Adviser Hedge Fund Portfolios, which had $2 billion under management at the end of March.
Bankman-Fried and FTX also served as title sponsors of the annual SALT conference hosted by SkyBridge, which brings together hedge funds. They signed a contract for 3 years. The Mooch also revealed that he was recently in the Middle East – Saudi Arabia, Abu Dhabi – with Bankman-Fried looking to raise new money.
“I think it’s really hard to protect yourself from that kind of misrepresentation,” Scaramucci said of revelations that Bankman-Fried may have altered his company’s balance sheet. “If you’re presented with a balance sheet that may or may not be accurate; if you’re presented with income statements that may or may not be accurate, that have been validated by third parties, that’s pretty rough. That’s very hard to see through.”
He continued, “If you run a background check on someone like Sam, you won’t find anything. He was spotless, if you will, prior to this incident.”
“He gave me the money I was looking for and I did a lot of research on him, but clearly not enough; so it’s important to explain that to people, to share that with people.”
The Mooch indicated in an interview with CNBC on Nov. 11 that he intended to buy back his shares of SkyBridge from FTX. But he did not provide any additional details on how he will finance the deal during that interview. Does SkyBridge have enough money for the transaction, given that the company was only bailed out two months ago?
Also, the other point is that FTX’s assets have been seized or transferred as part of the bankruptcy. And it is not certain that SkyBridge will have a say during the liquidation.
FTX is facing a $1.7 billion shortfall, one source told Reuters, while another said it was missing between $1 billion and $2 billion. Bankman-Fried, who stepped down as CEO on Nov. 12, was once hailed as the industry’s savior during last summer’s liquidity crisis.
FTX’s financials also showed that there was a “back door” in the books made with “custom software,” according to the news outlet. It was described as a way for Bankman-Fried to change the company’s financials without giving any warning.
But Bankman-Fried denied the existence of a “back door.”