The collapse of the trading arena FTX leading several crypto companies to bankruptcy, but also to losses and difficulties for ordinary financial institutions such as pension funds and banks that were exposed toFTX. Quite a few other crypto companies were found to be related parties, and therefore collapsed or may soon collapse.
Investors in Sam Bankman Freed’s FTX crypto trading arena have written off a cumulative $1.9 billion worth of investments, the value of which has been reduced to zero due to bankruptcy proceedings. The gap in assets of FTX Compared to its liabilities, it is estimated at about 8 billion dollars, but this number can change Dramatically in both directions, as more details become clear about the tangle of about 130 companies registered in the bankruptcy petition and the collection of all their assets and liabilities.
The Japanese investment fund Softbank, which relies on extensive funding from Saudi Arabia, has written off $100 million. The investment fund Sequoia Capital wrote off 263.5 million dollars. The Ontario Teachers’ Canada Pension Fund has written off $95 million. Singapore’s sovereign wealth fund Temasek mimics a $275 million investment, and claims that “the financial statements of FTX We were carefully examined in 2021 and reflected a profitable company.”
According to the statement of the new CEO following the bankruptcy process, one of the accounting firms that prepared the reports has no professional reputation in the field of accounting, but became famous thanks to the opening of a branch in the Metaverse “Desenterland” universe.
The Kripo Pradigm investment fund Imitated an investment of about 278 million dollars. The investment fund Tiger Global Imitated an investment of about 38 million dollars. More investments were made in the company from different crypto companies such as CoinbaseBinance and others.
FTX’s celebrity army
The football player Tom Brady and his partner at the time, the model Gisele Bundchen, the basketball player NBA In the past, Shaquille O’Neal, basketball player Stephen Curry and tennis player Naomi Osaka were also invested in FTX and even took part in advertising the brand.
Brady, Gisele and Carrie participated in an advertising campaign forFTX For $20 million, and now the company and they are being sued in an $11 billion class action lawsuit in Florida for defrauding investors. Also included in the lawsuit are O’Neill and comedian Larry David who starred in a long advertisement for FTX which was broadcast in the Super Bowl final. Ironically, David’s character urged not to invest inFTXafter demonstrating errors in identifying the potential of inventions and innovations throughout history such as the electric light bulb, the toilet, the coffee and the fork.
Canadian businessman and TV host Kevin O’Leary was also invested inFTX. to the trading arena There were sponsorship agreements with athletes and other celebrities, who received compensation in crypto, unlike those who received shares in the company. These sponsorship agreements helped the company gain branding and legitimacy among small investors around the world.
The bank that got into trouble and is exposed to regulatory violations
The small Silvergate bank from the United States has become famous as one of the only banks willing to work with crypto companies. Silvergate serves companies from the field of Bitcoin mining and also trading companies such as FTX. SinceFTX- Incorporated on the island of Antigua and operating from the Bahamas, it had difficulty obtaining a bank account. In Silvergate there was an account for Sam Bankman Fried’s sister company – Alameda Research.
In fact, when customers asked to deposit money toFTX, they were sent to deposit it into Alameda Research’s Silvergate account. This situation exposes the bank to investigation for possible violations of the regulations concerning money laundering and customer identification. The bank did not refer anyone, but accepted deposits for years to one company for another company.
Sam Bankman Fried recently explained that “it’s not exactly that the customers’ money inFTX Move to Alameda”. In fact, they were pre-deposited in Alameda’s account from the beginning, so that they were technically accessible for its use at all times. From a legal point of view, these are not related companies, but rather 2 different groups of business activity, which only share a common controlling owner – Sam Bankman Fried .
Crypto companies stick to each other, therefore collapsing with each other
The extensive involvement between companies in the crypto economy, both in the form of cross-holdings and in the form of mutual loans, inevitably leads to difficult business situations for other companies.
Genesis, which has an active loan balance of $2.8 billion in crypto, stopped withdrawals from the platform last week. The company announced today (Tuesday) that it does not intend to go bankrupt, but it is not clear where it will raise funds to continue operations. The problems at Genesis also have implications for the Gemini crypto trading arena owned by the Winklevoss twins (Facebook co-founders), some of whose investment products operate in partnership with Genesis.
The world’s largest crypto arena, Binance, is not currently facing immediate risk, but is being criticized for a move perceived as fraudulent. The company encouraged crypto companies to present “proof of reserves” when publishing crypto wallet addresses and their contents, but was caught moving $2.8 billion worth of crypto assets from the wallet advertised as the “reserve wallet.” In fact, these announcements and movements have no meaning in terms of financial stability, if the proof of reserves does not come alongside a statement regarding the amount of the company’s liabilities.
company Crypto.com The freeze is also withdrawals for customers last week, in a “run to the bank” situation and it is not clear if and when they will resume. The company has investments of hundreds of millions of dollars in advertising, including in advertisements in the Super Bowl, in the current World Cup and in the purchase of the name of the hall of the groupNBA Los Angeles Lakers. As of today, there is no way to return the investment in these expenses, during the “crypto winter” when investors pull assets and funds out. The crypto token that the company issued (Cronos) It dropped in value, making it difficult for her to exercise holdings.
Crypto.com Arena, the home court of the Los Angeles Lakers, which received $700 million in sponsorship from the site (Photo: AP Photo/Jae C. Hong)
The crypto fund Multicoin Capital which is worth 450 million dollars, announced that its value dropped by 55% this month and that it is exposed toFTX.
Crypto giant Blockfiwhich has been in difficulties and depends onFTX For ongoing financing needs, the freeze is dragging on and is expected to go bankrupt soon. The company had deposits of between $14 billion and $21 billion in 2021 in crypto assets. As crypto prices have plummeted since then, so has the company’s balance sheet, but it is clear that Blockfi unable to cover its obligations on its own.
The crypto company Voyager, already bankrupt, was supposed to complete a rescue deal and sell its assets to the company FTX US, for 1.3 billion dollars, which would have allowed her to return to her clients 70% of the assets they deposited with her. The deal is frozen and the probability of its completion is very low, which hurts Voyager’s customers.
The strongest effect – breaking the image
Probably the biggest damage from a crash FTX Not the empirical damage, but the breaking of the image of crypto as a financial innovation that can bring new and great wealth. Now it turns out that this is an economy with a fraudulent structure, a kind of decentralized Ponzi scam, in which investors receive a return not as a result of any economic activity, but only as a result of the flow of new money from new investors. The participation of celebrities in the solicitation of financial investments may cause the public to doubt that sports players and models are a relevant Source of financial advice.
This insight keeps institutional investors and banks away from entering crypto and also individual investors today tend to withdraw and withdraw funds from crypto platforms, rather than making new investments.
However, the crypto economy has another illusion that has not yet been dispelled, and that is the illusion of the value of the assets in ordinary country money. A significant part of the crypto trading arenas do not allow withdrawal in dollars, but only in crypto. There are two reasons for this – many of these companies fail to meet the regulatory requirements that would allow them to obtain a bank account and also the relative paucity of dollars in the system, compared to a theoretical value of hundreds of billions for the crypto assets. Customers who managed to withdraw crypto to a private digital wallet are still exposed to the dangers of losing the private key to the wallet (password) or phone and computer hacks. When they do want to sell the crypto for regular money, there are fewer and fewer reliable places to do so that are actually able and willing to pay real dollars for crypto assets.
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