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Crypto markets in turmoil over FTX bankruptcy

Nov 11 (Reuters) – Crypto exchange FTX filed for U.S. bankruptcy on Friday and Sam Bankman-Fried stepped down as chief executive, after a liquidity crisis prompted intervention from regulators around the world.

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

MARKET REACTION:

Shares of 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 collapse in the industry.

COMMENTARY:

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

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

“There was a lot of bad news already priced in. You would think these stocks would be significantly lower on this news, but many actually came off the loss significantly. The decline was bought.”

THOMAS HAYES, BOARD MEMBER AT GREAT HILL CAPITAL LLC IN NY

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

“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 moving forward is that confidence is lost in an asset class that’s been driven by nothing backed up and that. will be something that has to play out.”

JAY HATFIELD, CEO OF INFRASTRUCTURE CAPITAL MANAGEMENT IN NEW YORK

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

“Well, they’ve already taken a pretty big hit. And generally 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 will drag them higher. “

JOSEPH EDWARDS, INVESTMENT ADVISOR AT SECURITIZE CAPITAL

“The biggest danger here is that the US entity is involved – that essentially means that contamination risk now jumps into areas that were supposed to be cordoned off, at which point it becomes much closer to an existential problem because of the regulatory implications. “

“The failure here was essentially a failure of operating structures rather than a failure of the asset class, but when US entities and authorities start to get involved, the difference between the two starts to blur.”

ERIC CHEN, CEO AND CO-FOUNDER OF INJECTIVE LABS

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

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

“I think the events that have taken place over the past few days just add further fuel to the broader decentralization narrative and how important it will be for users to have unrestricted access to their funds at all times. In the long term, I think participants in crypto will be even more wary of centralized platforms or exchanges that would be a huge boon for decentralized finance as a whole.”

OMID MALEKAN, ADJUNCTE PROFESSOR AT COLUMBIA BUSINESS SCHOOL

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

“The ‘how’ is even harder to answer because unlike a Terra, which was always questionable, or a Celsius, which like any borrower could face a run, FTX was almost universally considered safe, especially after played white knight for other failed crypto players SBF CEO has taken a leadership role in things like regulations and it seems almost pathological to have someone run a massive fraud while at the same time working with Congress to industry. Ultimately, the lesson here is that the crypto industry needs to stop trusting personality cults, no matter how well-intentioned they may seem.”

RICHARD GARDNER, CHIEF EXECUTIVE OFFICER OF MODULUS GLOBAL, A SOFTWARE PROVIDER TO BIG-TICKET WALL STREET CLIENTS

“FTX finding itself in this situation to begin with is certainly no surprise. SBF’s freewheeling approach to industry consolidation was ill-advised from the start. Even if it was in a position to make the acquisitions successful, we are at the beginning of the economic crisis. Finding the best deals related to the most prestigious institutions was a waiting game in order. Shooting for the moon so quickly was a sure way to invite this kind of risk, and although While this is not a surprise, it is certainly not going to give retail investors any 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 under the spotlight on liquidity concentrations at Alameda that were vulnerable to price shocks that CZ/Binance can cause by dumping certain assets. When FTX crossed the line to help Alameda weather the storm, the trap 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 from their exchange, eradicating liquidity from the world’s second most popular stablecoin in favor of their own stablecoin. Highlander hardball tactics carried the day again and Binance’s hand is strengthening at the expense of the #2 and #3 players in the industry.

“It’s a rough and tumble world that just got rougher. Longer term, CZ/Binance may have their own take on their lax compliance controls that have benefited things like Russia’s version of Silk Road and been a conduit of money laundering for North Korean hackers.”

JOHN GRIFFIN, CEO AND VIEWER OF INTEGRA FEC, WHICH PROVIDES CONSULTING TO GOVERNMENT AGENCIES AND LAW FIRMS INVESTIGATING FINANCIAL TROUBLES, AND PROFESSOR OF FINANCE AT 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 if you have a big entity like this that goes down, all the assets tied to that FTX exchange go down. It’s kind of like the big financial crisis. You have people who have their custodians or assets related to FTX This could cause someone else to go under.

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

“It appears that Alameda has a multi-billion-dollar liability deficit. That means they owe somebody billions of dollars. So those parties, as they’ve experienced losses, that can cause them to wipe out other entities and wipe out those entities. other entities. You have an incentive to basically break all counterparties, you want to eliminate the counterparty risk, as you want to get out of any derivative trades you’ve made. You pull everything in hard cash. So you might sell bitcoin or other crypto to raising cash This puts downward pressure on crypto.

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

Our Standards: The Thomson Reuters Trust Principles.

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