Crypto markets in turmoil after FTX bankruptcy

Nov 11 (Reuters) – Crypto exchange FTX filed for U.S. bankruptcy on Friday and Sam Bankman-Fried stepped down as CEO, following a liquidity crisis that has prompted intervention by regulators worldwide.

FTX, its affiliated crypto trading fund Alameda Research and about 130 other companies have filed for voluntary Chapter 11 bankruptcy proceedings in Delaware, FTX said.

MARKET REACTION:

Shares in cryptocurrency and blockchain-related firms fell on Friday after FTX, one of the largest crypto exchanges, said it would begin bankruptcy proceedings in the United States, triggering a potentially massive meltdown in the industry.

COMMENTS:

DENNIS DICK, MARKET STRUCTURE ANALYSIS AND TRADER AT TRIPLE D TRADING

“The bankruptcy filing happened right before the opening, so that actually knocked the whole stock market down as well.”

“There was a lot of bad news already priced in. You would think that these stocks would drop significantly on this news, but many have actually dropped significantly out of the loss. The drop was bought.”

THOMAS HAYES, MANAGING MEMBER OF GREAT HILL CAPITAL LLC IN NY

“It’s selling the rumor. Now we have the news. What was feared has now been done and I wouldn’t be surprised if in the coming days you see crypto start to bottom out.”

“The shock was that this guy was the face of the crypto industry and it turned out that the emperor had no clothes. And I think the real risk going forward is that confidence is lost in an asset class that is not backed by anything and that” will be something which must play out.”

JAY HATFIELD, CEO OF INFRASTRUCTURE CAPITAL MANAGEMENT IN NEW YORK

“Bitcoin dropped when the bankruptcy was announced quite significantly, and that tends to drag down most crypto-related stocks like MicroStrategy because they own Bitcoin.”

“Well, they’ve already taken a pretty big hit. And overall, we’re in an uptrend after the inflation report. All of these securities are high data, high risk, so if the market goes up, that’s going to pull them higher.”

JOSEPH EDWARDS, INVESTMENT ADVISOR AT SECURITIZE CAPITAL

“The biggest danger here is that the US entity is involved – it essentially means that contagion risk now jumps into areas that were supposed to be demarcated, and then it becomes much closer to an existential problem because of the regulatory implications.”

“The failure here has essentially been a failure of industry structures rather than a failure of the asset class, but as U.S. entities and governments begin to engage, the distinction between the two begins to blur.”

ERIC CHEN, CEO and co-founder of INJECTIVE LABS

“Today’s events are likely to cause ripple effects across the regulatory environment given that the SBF was a major donor to the election (the sixth largest donor overall), so politicians are likely to have a negative feeling about centralized crypto exchanges going forward.

“Washington has lost one of the most important voices in crypto and I’m not sure who exactly fills that gap in the near term. I suspect this volatility will be short-lived as it is mainly driven by sudden liquidations.

“I think the events that have happened in the last few days only add further fuel to the broader decentralization narrative and how important it will be for users to have unlimited access to their funds at all times. In the long run, I think participants in crypto will be even more wary of centralized platforms or exchanges that would be a great boon for decentralized finance as a whole.”

OMID MALEKAN, ASSISTANT PROFESSOR AT COLUMBIA BUSINESS SCHOOL

The “what” of this latest crisis appears to be that FTX did things with client funds that an exchange shouldn’t have, and now some amounts are missing. We need more details to know what the exact inappropriateness was and how much can be recovered.

“How” is even harder to answer because unlike a Terra, which was always questionable, or a Celsius, which like any lender could face a run, the FTX was almost universally perceived as safe, especially after playing white knight to other failed crypto gamblers. CEO SBF had taken a leadership role on things like regulations, and it seems almost pathological to have someone run a massive scam while working with Congress to clean up the industry. Ultimately, the lesson here is that the crypto industry needs to stop relying on personality cults, no matter how well-intentioned they may seem.”

RICHARD GARDNER, CEO OF MODULUS GLOBAL, A SOFTWARE SUPPLIER TO BIG-TICKET WALL STREET CLIENTS

“FTX finding itself in this situation to begin with is absolutely no surprise. SBF’s free-wheeling approach to industry consolidation was ill-conceived from the start. Even if he was in a position to succeed with the acquisitions, we are at the beginning of the economic crisis. To finding the best deals associated with the most sought-after institutions was a waiting game in its place. Shooting for the moon so soon was a sure way to invite this kind of risk, and while not a surprise, certainly isn’t going to deliver retail investors some sense of calm.”

GREG KIDD, CO-FOUNDER OF VC FIRM HARD YAKA

“Sam and FTX played a brilliant long-term strategic game (chess). Unfortunately for them, CZ and Binance chose to play a short-term tactical game (checkers) that put FTX in the spotlight on liquidity concentrations in Alameda that were vulnerable to price shocks that CZ/Binance could trigger by dumping certain assets. When FTX crossed the line to try to help Alameda weather the storm, the trap was sprung and brought the entire SBF ecosystem to its knees.”

“CZ and Binance flexed their muscles last month by delisting Coinbase and Circle’s USDC, forcing liquidity from the world’s second most popular stablecoin in favor of their own stablecoin. Highlander hardball tactics again carried the day, strengthening Binance’s hand at the expense of #2 and #3 players in the industry.

“It’s a tough world that just got tougher. Longer term, CZ/Binance may have its own take on its lenient compliance controls that have benefited the likes of Russia’s version of Silk Road and been a conduit for money laundering revenue for North Korean hackers.”

JOHN GRIFFIN, CEO AND FOUNDER OF INTEGRA FEC, WHICH ADVISES GOVERNMENT AGENCIES AND LAW FIRMS INVESTIGATING FINANCIAL FRAUD, AND PROFESSOR OF FINANCE AT THE UNIVERSITY OF TEXAS

“The next question is how big a contagion effect this will have on other exchanges and where the next potential losses may occur.

“Usually there’s a lot of cross-collateralization. So to what extent when you have a big entity like this that goes down, all the assets associated with that FTX exchange go down. It’s kind of like the Great Financial Crisis. You have people who have their custodians or assets related to FTX It may cause someone else to crash.

“You have a lack of trust in the crypto space, so you don’t know if someone else will go bankrupt, and you might not want to get your crypto out (from other players). Investors can pull their crypto from the exchanges and put it on the blockchain. Then this would remove a lot of cross security, a lot of leverage in the system, depress crypto prices and potentially cause other players to fail.So this could be like a financial crisis in the crypto space.

“It looks like Alameda is multi-billion dollar defaults. That means they owe a few billion dollars. So those parties, as they experienced losses, could cause them to wipe out other entities and those entities could be wiped out. other entities. You have an incentive to break all counterparties, you want to eliminate counterparty risk, like you want to get out of any derivative trades you’ve made. You pull everything into cash. So you can sell bitcoin or other crypto to raise money It puts downward pressure on crypto.

Compiled by the Global Finance & Markets Breaking News team; Editing by Richard Chang

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