The monumental collapse of FTX will go down as one of the biggest corporate scandals of all time. But, at least Sam Bankman-Fried, or SBF, is sorry. On November 22, the disgraced founder of FTX wrote a letter to his former employees describing his role in the company’s bankruptcy. “I never meant for this to happen,” he wrote. “I didn’t realize the full extent of the margin position, nor the magnitude of the risk that a hyper-correlated collapse poses.” Get this: SBF still thinks the company can be saved because “there’s billions of dollars of genuine interest from new investors.” Shouldn’t he be busy trying to avoid prison right now?
Bitcoin (BTC) and the broader crypto market have been reeling in the wake of the scandal. While this has allowed many diamond-handed hodlers to accumulate more BTC on the cheap, institutional investors are using this opportunity to short the market. We may finally get that final capitulation to end the current four-year cycle.
As always, this week’s Crypto Biz newsletter delivers all the latest high-profile business news from our industry.
Sam Bankman-Fried says he is ‘deeply sorry’ for the collapse in a letter to the FTX team
SBF’s letter to former FTX employees painted the picture of a deeply remorseful founder who managed to squander billions due to excessive margins and poor oversight. He also blamed the “run on the bank” for FTX’s eventual demise. For those of you keeping track, the bank run that SBF mentioned was caused by Binance CEO Changpeng Zhao announcing on Twitter on November 6th – of all places – that he would be selling $500 million worth of FTX tokens . That announcement caused a tidal wave of redemptions on FTX as users rushed for the exit. Within 48 hours, FTX was shown to be insolvent.
FTX owes more than $3 billion to its 50 largest creditors: Bankruptcy filing
The hole in FTX’s balance sheet is estimated to be worth around $8 billion – and much of it is owed to just 50 people. New bankruptcy filings in the state of Delaware this week confirmed that FTX’s top 50 creditors are owed a combined $3.1 billion. One individual was owed more than $226 million, while the rest of the top 50 had anywhere between $21 million and $203 million on the failed derivative exchange. So when can FTX creditors expect to get some of their money back? That could take years or even decades, according to insolvency attorney Stephen Earel.
FTX reveals its top 50 creditors are owed $3.1 billion.
The largest creditor is owed $226 million.
All names have been redacted. pic.twitter.com/JGeddvMB7w
— Tom Dunleavy (@dunleavy89) November 20, 2022
FTX crisis leads to record inflows into short investment products
Believers in Bitcoin as a sound money alternative to the current monetary regime used the latest market crash to accumulate more BTC. But for some institutional investors, the FTX collapse has created a new shorting opportunity. According to CoinShares, 75% of institutional crypto investments went into short investment products last week. In other words, they are betting that Bitcoin and other crypto-assets will see a further drop in price. BTC has already fallen to around $15,500, marking a new low for the cycle. Although Bitcoin could go much lower, we are nearing the end of the current four-year cycle. So, the bottom may be near.
US senators urge Fidelity to reconsider its Bitcoin offerings after FTX blowup
Fidelity Investments, one of the earliest institutional backers of digital assets, is being strongly urged by members of Congress to limit its Bitcoin investment offerings. This week, Senators Elizabeth Warren, Tina Smith and Richard Durbin again called on Fidelity to rethink its Bitcoin 401(k) product offering in the wake of the FTX disaster. “Since our previous letter [from July 26, 2022], the digital asset industry has only become more volatile, turbulent and chaotic — all characteristics of an asset class that no plan sponsor or person saving for retirement should want to go anywhere near,” the senators wrote. The crypto-skeptics can take their victory lap for now, but Bitcoin will have the last laugh.
The collapse of FTX has made it clear that the digital asset industry is in serious trouble. i joined @SenWarren & @SenTinaSmith to prompt Fidelity to do what is best and reconsider its decision to expose retirement accounts and employer-sponsored plans to these volatile assets. pic.twitter.com/qQn4PF80AP
— Senator Dick Durbin (@SenatorDurbin) 21 November 2022
Before You Go: Could Grayscale Cause the Next Bitcoin Price Crash?
Concerns about Grayscale’s Bitcoin Investment Trust (GBTC) began to rise last week after the company refused to provide an on-chain proof of its reserves. Now investors are concerned whether Grayscale’s parent company, Digital Currency Group (DCG), could be forced to liquidate a portion of its GBTC to cover a massive hold on Genesis Global Trading’s balance sheet. What is the relationship between DCG, GBTC and Genesis? In this week’s Market Report, Marcel Pechman and I discuss this relationship and why it matters to Bitcoin investors. You can watch the full replay below.
Crypto Biz is your weekly pulse of the business behind blockchain and crypto delivered straight to your inbox every Thursday.