Crypto VCs count on failing FTX investments

Venture capital (VC) firms Sequoia and Multicoin Capital have issued letters to limited partners informing them of their exposure risk to collapsed crypto exchange FTX.

Multicoin Capital, a crypto-focused VC entity, has reportedly told partners of the Master fund that it was unable to withdraw all crypto held on FTX before withdrawals were halted on Tuesday, saving only 24% of the funds held there.

FTX had witnessed an influx of $6 billion in withdrawals, sparking a bank run following revelations that the firm was engaged in talks with Binance over a buyout deal. That agreement has since deteriorated.

About 10% of Multicoin’s total assets under management remain locked up on the exchange pending withdrawal approvals, the firm said. These include bitcoin, ether and USD.

The process could take months to review if FTX were to go bankrupt, similar to what happened with Celsius Network earlier this year. The bankrupt lender has not yet made its customers whole.

While the fund avoided the worst of Celsius, Voyager and Terra’s explosions, Multicoin said it could not avoid being caught up in FTX’s insolvency because of its position in the exchange’s token FTT and other assets locked up on the platform.

The firm also informed partners that the fund’s largest digital asset position is Solana’s native token (SOL). Previously championed by FTX CEO Sam Bankman-Fried, SOL has fallen more than 50% since Tuesday, from $29 to around $15, now worth less than dog-themed memecoin shiba inu.

When Binance CEO Changpeng Zhao began unwinding the exchange’s position in FTT, FTX’s sister company Alameda Research likely sold SOL to support FTT’s price, Multicoin said.

Multicoin said it sought to reduce unnecessary exposure by recalling all outstanding collateral, as well as eliminating contagion to another counterparty – crypto financial services firm Genesis. Further details on why Multicoin wanted to reduce its Genesis exposure were not provided.

Genesis, meanwhile, tweeted Thursday that it had sold collateral, resulting in a total loss of about $7 million counterpartiesincluding Alameda.

Sequoia Capital writes off crypto exchange FTX

Around the same time, Sequoia Capital issued a statement of its own to its limited partners who advised it to reduce its FTX investment to $0.

“In recent days, a liquidity crisis has created a solvency risk for FTX,” the Menlo Park firm said. “The full extent and risk is not yet known.” Founded in 1972, Sequoia is one of Silicon Valley’s longest-running and most successful VC firms, having backed tech giants such as Apple and PayPal.

Sequoia, which has a stake in FTX and FTX.US via the Global Growth Fund III (GGFIII), said its exposure to the stock market was limited and its $150 million stake represented less than 3% of the fund’s committed capital.

The move away from FTX is part of a major shakeout in the industry that has rattled investors, spurred on by the public speculation above about FTX rehypothecated client crypto to save Alameda in the second quarter of this year.