It’s never a dull moment in the cryptocurrency space. That’s what crypto natives have commented, following the implosion of the world’s third largest cryptocurrency exchange FTX this week. Once valued at US$32 billion by investors, the company is facing a liquidity crunch with chief executive officer Sam Bankman-Fried admitting that bankruptcy is highly likely for the company without more capital support. This leaves its 1.2 million registered users in a limbo, and a rush for withdrawals ensues.
Shockwaves are already being felt across the industry with rival Binance pulling out from a non-binding agreement to acquire FTX. "As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX," a tweet from Binance reads. High profile backers of FTX include Sequoia Capital, Temasek, BlackRock and SoftBank. Sequoia Capital which invested US$210 million into the cryptocurrency exchange has informed investors that it had marked down its investment to US$0. A failed bailout of FTX is a credit negative for the entire crypto market, according to Moody’s Investors Service, but so far it doesn’t seem to pose a risk to traditional financial sectors.
“Crypto losses so far by retail and digital asset institutional participants have largely remained contained within the crypto sphere, a credit positive for banks and evidence of banks’ fairly cautious approach to crypto in light of the uncertain regulatory environment,” explains Fadi Massih, vice-president, financial institutions group, at Moody’s. “However, should leverage again build substantially in the crypto finance system, it could unsettle the banking system, even if banks continue distancing themselves from direct interaction with the crypto economy.”
Navigating a year of extreme volatility, the cryptocurrency industry has been under a lot of pressure with leading cryptocurrency Bitcoin falling close to 66% year-to-date. However, there is still strong interest in the underlying distributed ledger technology that powers such virtual assets.
