After throwing lifelines at the problems of BlockFi and Voyager Digital digital currency platforms, Sam Bankman-Fried, the 30-year-old billionaire founder of FTX, warns that some cryptocurrencies will fail soon.
The question in everyone’s mind in the crypto world is whether we have reached the bottom of the market. Nearly $ 2 trillion in crypto market value has evaporated since November. Two prominent digital assets Luna, a $ 40 billion cryptocurrency asset associated with TerraUSD, a $ 16 billion stable currency designed to maintain parity with the U.S. dollar, have collapsed. Earlier this month, bitcoin traded for less than $ 20,000, its lowest level since December 2020.
But the fall is far from complete. Earlier this month, Singapore-based Three Arrows Capital (3AC), a heavily leveraged cryptocurrency trading company with $ 200 million in exposure to Luna, revealed it was almost insolvent. Three Arrows had borrowed large sums from numerous crypto companies, including New Jersey-based Voyager Digital and New York-based BlockFi. To survive Three Arrows by default, the two digital asset exchanges targeted billionaire Sam Bankman-Fried, founder of FTX and the richest person in cryptography, valued at about $ 20.5 billion. Between FTX and its quantitative trading company Alameda, it provided companies with $ 750 million in lines of credit. There is no guarantee that Bankman Fried will recoup its investment. “You know, we’re willing to make a little bad deal here, if that’s what it takes to stabilize things and protect customers,” he says.
“We’re willing to do a little bad treatment here, if that’s what it takes to stabilize things.”
Sam Bankman-Fried
Bankman Fried’s cash infusions are far from altruistic. He has emerged as a smart vulture capitalist in the besieged crypto market, knowing full well that his own fortune depends on his good ups and downs. Bankman Fried has also bought into the cryptocurrency broker Robinhood, where FTX has already accumulated a 7.6% stake, and is rumored to be considering an acquisition.
Bankman Fried denies there are active merger talks with Robinhood, but tells Forbes that more mistakes are coming in the cryptocurrency exchange. “There are some third-tier exchanges that are already secretly insolvent,” says Bankman Fried.
GUERIN BLAK FOR FORBES
Fried’s FTX, along with Coinbase, Kraken and Binance, are giants among digital asset exchanges. They have millions of customer accounts and functionally function similarly to online stockbrokers. But outside of these whales, there are more than 600 cryptographic exchanges around the world operating on a largely unregulated border. Have you never heard of AAX, Billance and Hotbit? You’re not alone, but as Coinbase trades in bitcoins, ether and dogecoin and offers generous margin loans, up to 20 times their initial capital, to their customers. In the absence of any significant regulatory oversight, many cryptographic exchanges have been vulnerable to scammers and hackers.
The Japanese Coincheck exchange was hacked for $ 530 million in cryptography in 2018, the Singapore KuCoin exchange lost $ 275 million in 2020, and then in December 2021, Bitmart, based in the Cayman Islands, was raped for $ 200 million. In 2016, Bitifinex was hacked with nearly 120,000 bitcoins worth $ 2.5 billion now.
But despite generous bailouts, not even Bankman-Fried is able, or willing, to throw good money after bad money in perpetuity. “There are companies that are basically too far away and it’s not practical to support them for reasons like a substantial hole in the balance sheet, regulatory issues or because there isn’t much business left to save,” Bankman-Fried says. , which refused to name any specific cryptographic exchange.
As Forbes reported in its analysis of the top 60 cryptocurrency exchanges in the world, the digital asset exchange business generally lacks standards to certify a new entity before or after it begins soliciting funds from customers. The SEC does not regulate exchanges and the Trade and Commodity Futures Commission oversees only a handful of cryptocurrency derivatives markets. In the United States there is no member organization like FINRA to self-regulate cryptographic exchanges.
Bankman Fried is concerned about continued failures because during the euphoria of rising cryptocurrency prices, exchanges continued to increase the game to attract customers with generous returns for deposits. BlockFi or Voyager promised performance payments to customers, more than 12% a year, that had to be paid by charging at least as much interest to borrowers or, more likely, putting that money to work on decentralized financing DeFi applications. This worked well when the cryptography was going nowhere but up. Now it looks disastrous.
“There are companies that have basically gone too far and it’s not practical to support them.”
—Sam Bankman-Fried
Like JP Morgan during the panic and stock market crash of 1907, Bankman-Fried is taking advantage of cryptographic chaos to expand his empire. It recently closed the acquisition of Liquid, a troubled Japanese stock exchange. BlockFi and Voyager Digital are in their hands, and despite their denials, Robinhood may be next. According to sources familiar with his loans to Voyager, Alameda is likely to lose at least $ 70 million of the credit it has already granted. In 2021, publicly traded Voyager’s Digital had a market value of more than $ 3 billion. Today it shares the penny trade and its market capitalization of $ 62 million points to an imminent bankruptcy filing.
Despite the carnage, Bankman-Fried tells Forbes that FTX remains profitable and has been for the past 10 quarters. FTX’s largest rival, Coinbase, lost $ 432 million in the first quarter of 2022 and its shares have fallen nearly 90% from its all-time high.
Bankman-Fried also has his eye on cryptocurrencies, many of which took advantage of their balance sheet at a breakneck pace to quickly climb and take advantage of this digital gold fever of the 21st century. Shares of publicly traded cryptocurrencies, such as Marathon Digital Holdings and Riot Blockchain, have fallen more than 60% so far.
One of the cryptocurrencies that Bankman Fried is not worried about is Tether, the world’s largest dollar-denominated stable currency with a market capitalization in excess of $ 70 billion. Many industry observers have considered it a time bomb with a questionable guarantee, the failure of which would almost certainly be an existential threat to the entire cryptocurrency market. Tested during the sinking of the Moon, Tether briefly lost its $ 1 fix and dropped to a price of 95 cents. However, it successfully processed more than $ 10 billion in withdrawals and has since recovered.
Bankman-Fried says, “I think really bearish views on Tether are wrong … I don’t think there’s any evidence to support them.”
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