NEW YORK: The cryptocurrency markets continue to be subject to significant headwinds. Several funds have said that they are impacted by the fall of FTX, and another cryptocurrency startup is set to file for bankruptcy.
The Bahamas-based centralized cryptocurrency exchange FTX was founded by Sam Bankman-Fried (SBF) in 2019 and was valued at $32 billion. It was the third biggest crypto exchange in terms of trade volume, which declared bankruptcy last week. SBF CEO resigned after reportedly coding backdoors from the exchange and customer accounts to his bitcoin trading fund Alameda Research – a severe violation.
Several hedge funds are also involved in this debacle, with Galois Capital suffering the most loss. The co-founder of Galios, Kevin Zhou, wrote to investors, “about half of our cash is stranded on FTX, which was around $100 million based on Galios’ stated assets under management in June. Other funds, including Ikigai Fund, another hedge fund, and the Ontario Teachers’ Pension Fund, have also reportedly been affected. The Ontario Teachers’ Pension Fund committed $75 million in FTX’s series-B1 investment round in October 2021 and an additional $20 million in January 2022.
According to a statement released by the Ontario Teachers’ Pension Plan, this is less than 0.05% of the fund’s total net assets. A few funds have come forward, but there may be more. If it turns out that other hedge funds are engaged, this might pose a systemic danger to the stock markets since the fund would be forced to liquidate shares to pay margin calls and withdrawals.
Trust in the crypto industry is at an all-time low for a good reason, and now there is another factor. Due to its considerable exposure to FTX and Alameda Research, BlockFi, a lender in the crypto industry, is preparing for a possible bankruptcy petition. This company did not use customer cash like FTX but instead issued FTX a $400 million line of credit, which looks to be in default.
Overall, FTX has caused significant harm to the cryptocurrency ecosystem, which was earlier hailed for its decentralized and unregulated nature. More than ever, authorities are focusing on cryptocurrencies, and we may see significant changes in the area shortly.