Byline: Hannah Parker
The cryptocurrency industry is still reeling from the shocking death spiral of the digital currency exchange FTX last week. The company’s bankruptcy filing has left financial backers in the lurch, including Silicon Valley’s usual suspects, such as Masayoshi Son’s SoftBank and VC firm Sequoia.
However, a few names on the list stand out. The Ontario Teachers’ Pension Plan put money into the company. Through Sequoia and other venture capital firms, the Alaska Permanent Fund Corp, the Washington State Investment Board, and others were indirect investors in FTX. While these funds claim to have had limited exposure to FTX, their inclusion points to a growing but concerning trend that could affect you even if you are not a crypto buyer.
Image by WorldSpectrum from Pixabay
The FTX Fallout
The cryptocurrency industry is still reeling from the shocking death spiral of the digital currency exchange FTX last week. The company’s bankruptcy filing has left financial backers in the lurch, including Silicon Valley’s usual suspects, such as Masayoshi Son’s SoftBank and VC firm Sequoia.
However, a few names on the list stand out. The Ontario Teachers’ Pension Plan put money into the company. Through Sequoia and other venture capital firms, the Alaska Permanent Fund Corp, the Washington State Investment Board, and others were indirect investors in FTX. While these funds claim to have had limited exposure to FTX, their inclusion points to a growing but concerning trend that could affect you even if you are not a cry yourself.
However, as the FTX debacle demonstrated, risky investments can erode a weakened pension landscape. Alternative investments are frequently more complicated, have higher fees, and are more volatile than stocks.
According to a Visa spokesperson, the company has “terminated [its] global agreements with FTX” and is “winding down” its payments card programme with the company.
In January 2022, FTX launched its Visa-powered payment cards. Before its collapse and bankruptcy in November 2022, it announced in October that it would expand the availability of those cards to 40 other countries.
Visa called FTX’s failure “unfortunate,” adding that it is “closely monitoring developments.” Visa, which collaborates with at least 65 other cryptocurrency companies, stated that its digital currency efforts would continue with a focus on security and trust.
BlockFi disclosed that it has “significant exposure to FTX” and its related companies, including Alameda Research obligations, assets held at FTX.com, and a credit line from FTX.US.
BlockFi stated that it would try to recoup its funds throughout the failed exchange’s bankruptcy proceedings. The company claims to have enough liquidity to investigate its options and works with financial advisors and outside counsel. It needs to be clarified how much money BlockFi owes. However, the company denied that most of its assets are held by FTX, emphasising that any such rumours are false.
Due to the failure of FTX, BlockFi suspended withdrawals on November 11, 2022, and asked clients not to make deposits at that time. According to the company, it will “continue to pause many of [its] platform activities.”
A Crypto.com representative told the Wall Street Journal that the exchange saw high withdrawals, but that “fluctuations in deposit and withdrawal activity [do] not affect our levels of service.” To meet user demand, Crypto.com moved $33 million from other wallets, avoiding illiquidity.
The bank run also roughly coincided with the collapse of FTX, which may have prompted investor concern. Crypto.coCrypto.com m, on the other hand, insists it has little exposure to FTX: the exchange’s CEO, Kris Marszalek, stated today that his company has recovered $990 million from FTX. According to reports, the exchange now has only $10 million in exposure.
FTX Collapse Spills Over to the Crypto Industry
Since the FTX crisis began, bitcoin has fallen from $20k per coin to $16.5k, its lowest value since 2020. According to CoinMarketCap, the overall sector has dropped nearly 5% in the last 24 hours, and large companies and protocols with FTX exposure must demonstrate their own liquidity. In expert Bitcode Method findings, a popular token on the Solana protocol that allows users of that blockchain to trade bitcoin depends on FTX for its value. If the exchange fails, it is unclear whether any bitcoin on that protocol will be recoverable, wiping out millions of dollars overnight.
And, as with any cryptocurrency crash, all eyes are on Tether, the $70 billion “stablecoin” that underpins much of the industry’s economy. The token slipped off its “peg” on Thursday morning, trading at $0.98 per company’s dollar. Paolo Ardoino, the chief technology officer (CTO) of the company that issues Tether, tweeted to reassure investors, noting that the company had processed approximately $700 million in withdrawals in the previous 24 hours. “No problem,” he said, “we’ll keep going.”
The collapse of FTX remains a major news story. As time passes, other companies will almost certainly reveal their connections and exposure to the failed exchange. With more and more influence being transferred to the crypto industry. While we don’t know the impact on investors and the crypto industry, one thing is certain: FTX has shaken the cryptocurrency foundations.