The FTX Disaster: Why Does It Profoundly Impact the Crypto Market?
The FTX fiasco has severely influenced many companies and even the entire crypto industry. Thus, many people attach the ‘contagion’ to this exchange’s collapse. Yet, it is still confusing as to why such an exchange can create a massive domino effect on the whole cryptocurrency market.
This article combines some valid perspectives and analysis about why the FTX collapse is a strong punch in the face of the crypto industry. The information is picked from some reliable sources such as Coindesk, Cointelegraph, and Vox.
Which Companies Bore the Brunt of the Crash?
FTX and its founder, Sam Bankman-Fried, have been superstars until everything crumbled into pieces of illusion. Now the whole market suffers, yet some companies take the pain more directly and severely than others.
Genesis Could Not Withdraw $175 Million.
This institutional trading firm has to witness its $175 million stuck in locked funds that are related to Genesis’s trading account on FTX. Yet, its market-making activities and operations are still active and smooth thanks to excellent management and flexible tactics amidst the crisis. Besides, Genesis makes it clear that it had trading relationships with the crypto exchange, yet the connection with FTX and Alameda Research is not present now.
Galaxy Digital Exposed $76.8 Million to FTX.
Galaxy Digital is a blockchain financial services company. It now has $76.8 million stuck in FTX, $47.5 of which is now in the process of being withdrawn. However, the company does not have to deal with this trouble as it still has $1.5 billion in liquidity. So, the losses are now under the control of the firm.
Sequoia Capital Invested $213.5 Million in FTX and FTX US.
Sequoia Capital has announced its investment in FTX and FTX US which are now zero-valued companies. The $213.5-million investment is not small, yet the company claimed that it could handle the losses with its gains.
Galois Capital Has Half of its Capital Stuck on FTX.
Galois Capital, a hedge fund, is now on edge as there are 50% of its capital held in the FTX. The estimated amount can be around $100 million, according to the firm’s assets under management in June.
BlockFi Has a Substantial Amount of Stuck Capital on FTX.
BlockFi, a crypto lending firm, admitted that it has been significantly exposed to FTX collapse. However, it clarified that the majority of its assets are not held on the FTX exchange. The recent activities of BlockFi are to halt client withdrawals and advise their users not to deposit to its BlockFi wallets or Interest Accounts.
Crypto.com Has $1 Billion Worth of Assets in FTX.
Kris Marszalek, the CEO of exchange Crypto.com, stated that the $1 billion worth of assets moved to FTX is now fully recovered. The exposure is now limited to under $10 million, which is totally under the control of the company. The users of Crypto.com can still withdraw money from the exchange. The company also denied the allegations of taking the exchange’s native token as collateral for the loans.
Wintermute Lost $160 Million in a Hack.
Wintermute, a crypto market maker, was now in the spotlight as its losses to FTX were up to $160 million in a hack. Also, it admitted having some remaining funds on the FTX exchange. The exact amount has not been exposed, yet the firm assured its followers that the losses cannot have a huge impact on its financial position.
Multicoin Capital Has Approximately $863 Million in Assets Locked on FTX.
Nearly $1 billion in assets frozen on FTX might put Multicoin Capital, a venture capital firm, in tough situations. Yet, it confirmed that 10% of assets are under management within its Master Fund stuck on the exchange.
CoinShares Cut Down the Overall Exposure to $31.5 Million.
CoinShare, a digital asset trading group, has reassured investors that it could reduce its overall exposure to $31.5 million. Besides, it also emphasized that the financial state of the firm is still strong. The exposure includes about $3.1 million in Bitcoin, $1 million worth of Ethereum, $25.9 million in United States dollars and USD coins, and so on.
Amber Group Used to be a Close Client of the FTX Exchange.
Amber Group, a financial services firm, has been active on the FTX exchange. So, when the collapse of this exchange happened, people considered that the firm might encounter big problems. Yet, Amber Group announced that the exposure is under 10% of its total trading capital. So, it will not profoundly worsen the liquidity of the firm and its operations.
Nexo Has a Small Loan to Alameda Research.
Nexo, a crypto lender, has not got back the money it lent to Alameda Research amidst the collapse of FTX. Yet, the loan was less than 0.5% of its total assets. Moreover, Nexo can also dodge a potential $219 million loss through the withdrawal of its entire balance from the FTX exchange.
Why is the FTX Collapse a Big Deal?
When FTX collapsed, it was the downfall of a glorious and promising superstar in the industry. Sam Bankman-Fried (SBF), the founder of FTX, is a shocking portrait of hubris and deceit. He has faced many troubles among regulators and skeptics.
FTX’s project is the source of SBF’s reputation and notoriety for both being good and disastrous. SBF used to be a crypto golden boy when being the second largest donor for the 2020 U.S. presidential election of Joe Biden. And now everything has broken into pieces, FTX and Sam Bankman-Fried are still in the spotlight but the notorious ones.
Yet, some people argue that many coin exchanges have collapsed. Why does this event become a big deal? Are people overreacting?
It is a fact that many coin exchanges come and go in the industry. And it should not bother or shock people as much as the FTX fiasco. However, the different point is that FTX and SBF have done an excellent job in building a decent shape in the public eye. In other words, FTX won the trust of the community for its glorious performances and promising future.
As a result, when FTX’s‘ kingdom’ crumbled, it damaged trust in the entire industry. The concerns and questions about the power of centralized platforms such as FTX, Binance, Kraken, and Coinbase are now the talks of the town.
The FTX Implosion and the Urge in Crypto Regulation
The implosion of FTX is now like an alarming call in the entire industry, especially in terms of regulation. The investigation of the FTX fiasco is now run by the SEC and the Commodity Futures Trading Commission (CFTC). As a result, they can draw insights into what really happened and where the cracks turned as well as how to fix them.
Many experts highlight the importance of understanding the core mistakes rather than passing new rules without any valuable insights into the real problems. According to Xuan-Thao Nguyen, the director of the Asian Law Center at the University of Washington’s law school, the solution should include the consideration of regulations requiring crypto losses and gains.
Besides, the protections for crypto custodial accounts that are the same as stock accounts by brokerage firms should be considered in the process of solution.
So, the big mess needs a great deal of time for cleanup! We will continue with updates and deep dives into this topic and other aspects of the financial markets.
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