Cryptocurrencies Remain Under Pressure as FTX.com Goes Bankrupt

The price of Bitcoin (^BTCUSD) is down more than -6% today, modestly above Thursday’s 2-year low, after FTX.com said it filed for Chapter 11 bankruptcy.  The Bahamas, where FTX.com is based, has frozen the assets of FYX and its subsidiaries.  Also, FTX.com Founder and CEO Bankman-Fried resigned today.  

Mr. Bankman-Fried said earlier this week that FTX.com had a “liquidity crisis” and faced a shortfall of up to $8 billion and needed $4 billion in fresh capital to remain solvent. Mr. Bankman-Fried is reportedly facing an investigation by the U.S. Securities and Exchange Commission. 

The collapse of FTX.com began earlier this month after prices for FTX’s native crypto token, FTT, plummeted, and users raced to withdraw their assets.  There are concerns about contagion in the $1 trillion cryptocurrency industry stemming from the collapse of crypto exchange FTX.com.

The collapse of FTX.com prompted crypto lender BlockFi late Thursday to announce that it was limiting activity on its platform.  BlockFi said it would pause client withdrawals, citing “a lack of clarity” over the status of FTX as well as the uncertainty afflicting FTX.com and its trading house Alameda Research.  BlockFi also asked customers to refrain from depositing funds into their BlockFi wallets of interest accounts.  BlockFi said its platform's total deployable clients assets amounted to $3.9 billion.

SoftBank Group said it invested just under $100 million in the crypto exchange FTX.com and anticipates writing down the entire value of the stake.  Other capital venture firms may also be on the hook for losses from the collapse of FTX.com.  Sequoia Capital, one of FTX’s primary backers, put out a statement late Thursday reassuring investors its exposure was limited and saying it wrote down the total value of its investment in FTX.com

The collapse of FTX.com this week sparked a plunge in Bitcoin to a 2-year low Thursday. Bitcoin has now plummeted by -77% from its record high of $68,906 in November 2021 to Thursday’s 2-year low of $15,613.   Bitcoin and other cryptocurrencies plunged this week after crypto exchange Binance said it would not pursue an initial offer to acquire FTX.com. 

The bankruptcy of FTX.com is another blow to cryptocurrency markets after the collapse of Celsius Network and Voyager Digital, two other crypto platforms that filed for bankruptcy earlier this year.  Customers of Celsius Network and Voyager have been locked out of their accounts for months and became creditors in court proceedings, meaning they will have to go through the bankruptcy process to get any money back and fight with other creditors for their share of the company’s assets.

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