One of the biggest stories of the week has been the collapse of FTX International, or what some in the market are calling a “Lehman Brothers” moment for the crypto industry. Once valued at $32B and the third-largest crypto exchange by trading volume, FTX is having an insolvency crisis, prompting regulators from the Bahamas to Japan to freeze what’s left of its operations. It’s a moment of irony for the firm led by Sam Bankman-Fried, which itself served as a white knight this past summer to rescue several crypto players including BlockFi, Voyager Digital and Celsius.
The apology: “I’m sorry. That’s the biggest thing,” SBF wrote in a thread spanning over 20 tweets. “The full story here is one I’m still fleshing out every detail of, but as a very high level, I f—-d up twice [regarding leverage and liquidity]. A poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users’ margin. I thought it was way lower. Because, of course, when it rains, it pours. We saw roughly $5B of withdrawals on Sunday – the largest by a huge margin.”
Sister trading house Alameda Research is “winding down trading,” though SBF noted that the end of his crypto empire does not impact “FTX US, the US-based exchange that accepts Americans.” While consumers can get their funds out for now, the crisis is weighing heavily on the sector, with Bitcoin (BTC-USD) falling to the $15,000 level before paring some of those losses. “For a period of time after this, which could be months, investors will be hesitant to come back into the market for fear that there’s another shoe to drop,” noted Matthew Hougan, chief investment officer at Bitwise Asset Management.
Course of action: “My #1 priority – by far – is doing right by users. To take responsibility, and do what I can,” SBF continued. “So, right now, we’re spending the week doing everything we can to raise liquidity. I can’t make any promises about that. But I’m going to try. And give anything I have to if that will make it work. There are a number of players who we are in talks with, LOIs, term sheets, etc. We’ll see how that ends up. Every penny of that – and of the existing collateral – will go straight to users, unless or until we’ve done right by them.”