Troubled crypto exchange FTX finds no savior while its boss is humiliated by his arch-rival. Market strategists fear massive losses for the sector if the stock market collapses.
What is currently happening in the crypto universe is unusual even by the standards that apply there: A crypto king loses his billions in assets within a day, the world's third largest crypto exchange FTX is threatened with collapse, digital currencies are rushing into the basement, and nobody knows what shock waves all this will send through the crypto world.
Those who are not invested in cryptos grab their popcorn and watch the spectacle with fascination. Especially since the bitter end of a male friendship gives the whole thing additional spice. However, the crypto scene is wondering: what if the collapse of FTX becomes the Lehman moment of the crypto universe?
The implosion of the investment bank Lehman Brothers could have led to the meltdown of the financial system. This was prevented - but the collapse triggered a global financial crisis, from the consequences of which the global economy was only able to recover halfway after a few years.
For now, it doesn't look like FTX's struggle for survival will set off a conflagration that will spill over into the entire financial system. But the danger has not been banned in view of the worldwide spread of cryptocurrencies. What matters is the extent to which investors will have to liquidate investments to cover margin calls - and whether that will lead to a downward spiral in the financial markets.
The state of affairs: With FTX, the world's third largest trading platform for cryptocurrencies is facing serious liquidity problems. In desperation, FTX CEO Sam Bankman-Fried offered the exchange to market leader Binance. Its boss Changpeng Zhao had expressed doubts about the financial potency of FTX at the weekend and thus at least made a significant contribution to customers there withdrawing their deposits in panic and FTX having to stop paying out. "We strongly advise against making deposits," reads the top of the site. "This is bad," tweeted crypto investor Katherine Wu. "I can't begin to imagine the damage that will do [to our industry]."
Zhao, known in the industry as "CZ", and Bankman-Fried ("SBF") were once friends. But those times are over. This is probably mainly due to the fact that SBF lobbied zealously for its project and was also open to regulating the crypto market. This went down well with politicians and the traditional financial world - but not at all in large parts of the crypto scene. She sensed betrayal.
Zhao was also angry. Like others, he accused his former buddy of only having his own interests in mind. "We will not support people who lobby against other players in the [crypto] industry behind their backs," CZ tweeted.
Bankman-Fried may not have been particularly impressed. He managed to be perceived as the mouthpiece of the crypto scene. In May, American football legend Tom Brady and former US President Bill Clinton attended a conference he organized in the Bahamas.
SBF presented itself as the clean man in the industry who did not gamble with customers' deposits. Its stock market was considered stable and well financed. It weathered the failures of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital while the digital currency market crashed. Meanwhile, SBF helped struggling crypto projects that threatened to collapse in the face of soaring interest rates.
And that's probably the beginning of the end. According to Reuters news agency, he used his crypto hedge fund Alameda to finance the aid and suffered some significant losses in the process. To prop up the fund, which has reached nearly $15 billion in assets under management, SBF is said to have transferred $4 billion in assets from crypto exchange FTX to Alameda - part of it customer deposits.
Then, a cryptocurrency-focused news site published a leaked balance sheet from Alameda, showing that a “token” issued by FTX accounts for nearly a quarter of the $14.6 billion in total assets listed on Alameda’s balance sheet. Part of this FTX-owned digital currency is said to have been deposited as collateral for loans.
Bankman-Fried's arch-rival Zhao announced that Binance will sell all of those tokens from its own holdings worth $500 million. The token price then collapsed, dragging FTX down with it. According to a Wall Street Journal report, the stock market needs emergency aid to fill a gap of up to $8 billion.
SBF offered its company to arch-rival CZ. But after an audit, Zhao lowered his thumb. Reason: Media reports on misconduct in handling customer funds and possible investigations by US authorities.
After this humiliation, Bankman-Fried tries to save what can be saved. He would be "incredible, incredibly grateful" if investors could help, he told investors who have put money into FTX on a conference call. But that might be difficult. The crypto exchange OKX had already rejected a takeover of FTX because of the high risks. "It's a big hole to fill," said Lennix Lai, director of financial markets. The sword of Damocles will continue to hover over the crypto market as long as the fate of FTX is uncertain.
SBF put it more drastically in the conference call: "I fucked up."
