Further details emerge on FTX bankruptcy and missing funds
By Summer Zhen and Vidya Ranganathan
HONG KONG/SINGAPORE, Nov 12 (Reuters) – Further details of the bankruptcy of crypto exchange FTX emerged on Saturday, even as peers and partners distanced themselves from the company and sources said to Reuters that at least $1 billion in customer funds on the exchange had gone missing.
The saga that rocked the crypto world began with a rumor on Nov. 2 and culminated on Friday with FTX filing for creditor protection in US bankruptcy court and the resignation of founder Sam Bankman- Fried as chief executive in the industry’s most publicized meltdown.
The beleaguered crypto trading platform had struggled to raise billions to avoid bankruptcy as traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance took abandoned a proposed bailout deal this week.
FTX, crypto trading affiliate Alameda Research and about 130 of its other companies have begun voluntary Chapter 11 bankruptcy proceedings in Delaware, FTX said in a statement on Twitter on Friday.
In a follow-up tweet, FTX said subsidiaries LedgerX LLC, FTX Digital Markets, FTX Australia Pte Ltd, FTX Capital Markets, Embed Financial Technologies and Embed Clearing were not included in Chapter 11 filings.
People familiar with the matter told Reuters that at least $1 billion in client funds disappeared from FTX.
Bankman-Fried secretly transferred $10 billion in client funds from FTX to Alameda, they said. Much of that sum has since disappeared, they said, with one source putting the missing amount at around $1.7 billion and another putting the gap at between $1 billion and $2 billion.
The nine days of turmoil hit already struggling cryptocurrency markets, sending bitcoin to its lowest level in two years. Bitcoin fell after FTX’s announcement and is down 18% this month to $16,818 on Saturday.
Shares of cryptocurrency and blockchain-related companies declined. FTX’s FTT token plunged 30% on Friday, taking its collapse this month to 91%.
“Things will continue to simmer after the FTX crash,” said Alan Wong, COO of Hong Kong Digital Asset Exchange.
“With an $8 billion gap between liabilities and assets, when FTX is insolvent, it will trigger a domino effect, leading to a series of FTX-linked investors going bankrupt or being forced to sell assets. In a illiquid bear market, the event will lead to another round of cryptocurrency declines, as well as a leverage sell-off.”
It was a steep fall from grace for a company that was once a darling of the crypto industry. FTX raised $400 million from investors in January, valuing the company at $32 billion.
Bankman-Fried, 30, known for his shorts and t-shirts, went from poster boy for crypto successes to protagonist of the industry’s most high-profile crash.
In its bankruptcy filing, FTX Trading said it had between $10 billion and $50 billion in assets, $10 billion to $50 billion in liabilities, and more than 100,000 creditors. John J. Ray III, a restructuring expert, was named to take over as CEO.
Cryptocurrency exchange Coinbase Global Inc will reverse the investment its venture capital arm made in FTX in 2021, according to a person familiar with the matter. Its CEO, Brian Armstrong, told CNBC that crypto markets need regulation to prevent more washouts like FTX.
US video game retailer GameStop Corp said it was ending its gift card marketing partnership with FTX US and issuing full refunds to customers.
Bankrupt crypto lender Celsius said in a tweet that it had serum tokens on FTX, most of which were locked, as well as some $13 million in loans to Alameda.
“We believe cryptocurrency markets remain too small and siloed to cause contagion in financial markets, with a market capitalization of $890 billion compared to US stocks’ $41 trillion,” wrote Citi analysts.
“Over four years, FTX has raised $1.8 billion from venture capital funds and pension funds. This is the main way financial markets could suffer, as it could have other minor implications for portfolio shocks in a volatile macro regime.”
Hedge fund Galois Capital had half of its assets trapped on FTX, co-founder Kevin Zhou told investors in a recent letter, the Financial Times reported, estimating the amount at around $100 million.
(Additional report by Angus Berwick)