HONG KONG/SINGAPORE/NEW YORK, Nov 10 (Reuters) – FTX chief executive Sam Bankman-Fried on Thursday launched an urgent campaign to raise funds to save his business as the crypto exchange seeks to fill a $8 billion hole in its finances, according to tweets and a memo to employees.
Bankman-Fried said he was in talks with “a number of players” in the crypto industry, including Justin Sun who is the founder of crypto token Tron, after a potential bailout deal with a biggest rival Binance has collapsed. But he added in the memo that he didn’t want “to say anything about the chances of success”.
He also said his company Alameda Research, which sources say was partly to blame for FTX’s troubles, is shutting down operations.
The stampede marks a stunning downfall for the 30-year-old crypto executive, who in days went from being the savior of the industry to one in need of saving.
Problems at FTX, one of the world’s largest crypto exchanges, sparked a wider crisis of confidence in cryptocurrencies, with bitcoin falling below $16,000 overnight for the first time since late 2020.
However, an increase in the broader market after better-than-expected US inflation data also supported cryptocurrencies in late morning trading. FTX’s native token, FTT, is down over 90% this week and was trying to stabilize around $3.50. Bitcoin was trading at $17,428, up 11%.
Sun, founder of cryptocurrency network Tron, said in a tweet on Thursday “we are setting up a solution with #FTX to start a way forward,” without giving further details. Sun did not respond to a request for comment.
A spokesperson for FTX declined to provide further details on the talks.
The seeds for FTX’s downfall were sown months earlier, in mistakes made by Bankman-Fried after it intervened to rescue other crypto firms, sources said.
Users rushed to withdraw $6 billion worth of crypto tokens from FTX in days after a news report earlier this month raised questions about Alameda’s balance sheet and Binance CEO Changpeng” CZ” Zhao, tweeted that his company would sell its entire stake in FTX’s token, FTT. The outflow caused a liquidity crisis at FTX.
In the memo, seen by Reuters, Bankman-Fried said next week he would “make a raise” to benefit customers and “potential new investors”.
Another exchange, OKX, said it was approached earlier in the week by Bankman-Fried, who described $7 billion in liabilities that needed to be covered quickly.
“It was too much for us,” Lennix Lai, head of capital markets at OKX, told Reuters.
Bloomberg reported that Bankman-Fried told investors that FTX faced a shortfall of up to $8 billion and that the company would have to file for bankruptcy unless it received additional funding.
RISKS OF CONTAGION
Some investors were canceling funds invested in FTX. Venture capital fund Sequoia Capital reduced $150 million in exposure to zero on Wednesday. The Ontario Teachers’ Pension Plan of Canada, Tiger Global and Japan’s Softbank are also investors in FTX.
Investors are particularly focused on the unknown scale of customer losses and the impact on sentiment of the latest and perhaps the greatest collapse in an industry that has turned into a minefield for investors.
Crypto asset manager Coinshares said it has $30.3 million in total exposure to FTX.
Broker Robinhood (HOOD.O) said it had no direct exposure to FTX, but Bankman-Fried has a stake in the company and its shares fell sharply on Tuesday and Wednesday.
“A leading exchange failure – it’s on a different level,” said Danny Chong, CEO of decentralized finance firm Tranchess, with potentially wider ramifications than the failure of stablecoin TerraUSD and hedge fund. crypto Three Arrows Capital this year.
The US securities regulator is investigating FTX.com’s handling of client funds and crypto lending activities, according to a source with knowledge of the investigation.
A message on the FTX website stated that it was no longer processing withdrawals or accepting new users. Bankman-Fried said FTX.US, the exchange’s US operations, however, were not financially affected.
Bankman-Fried, who is originally from California but lives in the Bahamas where FTX is based, said the company will look closely at governance. “I won’t be here if I’m not wanted,” he wrote in a tweet thread.
Reporting by Angus Berwick in New York; Georgina Lee in Hong Kong and Tom Westbrook in Singapore; Elizabeth Howcroft in London Writing by Paritosh Bansal Editing by Megan Davies, Anna Driver and Matthew Lewis
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