FTX crisis hurts BlackRock, VanEck: “Crypto industry must work twice as hard to rebuild bridges”

For Grayscale, a crypto-asset manager, shares in its bitcoin trust fell relative to the value of the underlying asset in the fund to a record 40.9% on Nov. 9, according to YCharts data.

CoinShares, Europe’s largest crypto asset manager, said on November 10 that despite withdrawing funds in the past week, exposure to the FTX exchange was still more than a tenth of the firm’s net asset value, at £26 million. Its ETP, which tracks the price of FTX’s token FTT, has fallen around 90% since November 6.

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Crypto markets have taken a hit in recent days. Bitcoin fell to $16,287 on November 10, down 75% since the start of the year after a run on the FTX exchange in recent days blew a massive hole in its balance sheet, casting serious doubt on the company’s survival prospects.

FTX chief Sam Bankman-Fried first agreed to sell the business to rival crypto exchange Binance on November 8, as clients rushed to withdraw money from his trading platform following reports that they were facing problems due to losses at a related trading firm, Alameda.

But Binance, the world’s largest crypto exchange, said on November 9 that it was withdrawing from the deal. “At the beginning, our hope was to be able to support FTX’s customers in obtaining liquidity, but the problems are beyond our control or ability to help.

BlackRock, VanEck, WisdomTree, Grayscale, 21Shares and others offer investment products that track publicly traded crypto companies or markets.

BlackRock, VanEck and Grayscale did not immediately respond to requests for comment.

Usman Ahmad, CEO of Standard Chartered’s crypto firm Zodia Markets, told Financial news: “It’s hard to believe that it has resolved so quickly, especially considering how much money Sam Bankman-Fried had raised through FTX.”

READ FTX liquidity crisis forces crypto hedge funds to rethink

As in the crisis caused by the collapse of stablecoin terraUSD and its paired cryptocurrency Luna earlier this year, crypto firms have rushed to limit their exposure. Galaxy Digital, the crypto-asset manager run by Michael Novogratz, said it has exposure of about $76.8 million in cash and digital assets linked to FTX, but was in the process of pulling out nearly two-thirds of that figure earlier this week.

Sequoia writes down $150 million FTX investment to zero

In the venture capital space, Softbank, BlackRock and Sequoia Capital are among the firms expected to write off exposure to FTX amid the crisis. In a Nov. 10 letter to shareholders, Sequoia said it had reduced its $150 million investment in the embattled crypto firm to zero.

“We are in the business of taking risks,” the private equity giant wrote. “Some investments will surprise to the upside, and some will surprise to the downside.”

Other global giants that have bet big on FTX in recent years include the Ontario Teachers’ Pension Plan, Tiger Global Management, Ribbit Capital, Temasek and Lightspeed Venture Partners.

Millennium Management founder Izzy Englander, Brevan Howard Asset Management’s Alan Howard and the family office of billionaire Paul Tudor Jones were all angel investors in the company.

Other investors include Insight Venture Management, NEA Management, Paradigm Medical Industries, Coinbase Ventures, Institutional Venture Partners and Lux ​​Capital Group.

Hedge fund Third Point and tech-focused private equity firm Thoma Bravo also put in money during a $900 million fundraising in 2021.

Anatoly Crachilov, CEO of the crypto hedge fund Nickel Asset Management, told United Nations the industry’s credibility has been “severely damaged” by events and that the industry would suffer a “loss of confidence” as a result.

READGoldman sees client boomerang in ‘flight to quality’ as crisis engulfs crypto firms

“Given that the first cautious attempts to enter crypto by top-level global allocators, such as Ontario Teachers in the FTX case, ended in full write-off, one can safely expect that this will throw cold water on any immediate interests in crypto and will create a setback for further allocations to this sector for a while.

“When you assume significant responsibility and then burn that responsibility – the remaining players have to clean up the mess… The crypto industry has to work twice as hard to rebuild bridges with the institutional world.”

Crypto ‘Still Got Some Growing Up’

Investment banks such as Goldman Sachs, JPMorgan and Nomura have made concerted pushes into the digital asset space over the past year, while BlackRock and Fidelity have led the charge from the asset management side.

On November 10, Moody’s warned traditional financial companies against overexposing themselves to the sector.

“Crypto losses so far from institutional participants in retail and digital assets have been largely contained within the cryptosphere, a credit positive for the banks and evidence of the banks’ rather cautious approach to crypto in light of the uncertain regulatory environment,” said Fadi Massih, deputy director. president of Moody’s Investors Service’s Financial Institutions Group.

“However, should leverage again build significantly into the crypto-finance system, it could confuse the banking system, even as banks continue to distance themselves from direct interaction with the crypto-economy.”

Meanwhile, regulators in the US and UK, who have already taken a hard line on crypto, are likely to be emboldened by the events. The The Wall Street Journal reported that the Securities and Exchange Commission and the Justice Department are investigating FTX after the sudden implosion.

Charley Cooper, a former managing director at the US Commodities Futures Trading Commission, said United Nations: “This is a huge black eye for the industry and a blow to thousands of people and companies who have entrusted their money to FTX.”

He added: “For years, critics have argued that crypto is dangerous and doesn’t follow any rules, and that view appears to have been validated.”

Oliver Lynch, CEO of the crypto exchange Bittrex told United Nations the implosion of FTX showed that the industry “still has some growing up to do”.

Many firms will be “directly affected” by the crisis, he added. “On a personal level, it’s just heartbreaking to see people put in this position.”

He said it was “critical” in the coming weeks to find out “exactly what happened, why it happened and how we can make sure it doesn’t happen again”.

To contact the author of this story with feedback or news, email Alex Daniel