Crypto contagion from FTX implosion threatens other companies: “There are many more bankruptcies to come”
The reverberations of the collapse of Sam Bankman-Fried’s empire continue to ripple through financial markets, threatening the future of crypto lenders like BlockFi and Voyager Digital.
BlockFi, which said in a Monday blog post that it has “significant exposure” to FTX and the company’s affiliates. The Wall Street Journal reported that the lender was preparing for a possible bankruptcy filing. It stopped withdrawals last week due to uncertainties about FTX.
A company representative did not respond to a request for comment.
Bankrupt crypto lender Voyager was forced to try to find a replacement buyer for its assets after concluding that FTX would not complete a proposed $1.4 billion deal to buy the company.
“I don’t think we’ve seen the end of the contagion factor or the fear that’s running through the market,” Voyager’s chief bankruptcy attorney, Joshua Sussberg, said during a court hearing on Tuesday.
Elsewhere, crypto hedge fund Galois Capital has about $40 million to $50 million in exposure to FTX, with “significant” funds stuck. And brokerage firm Genesis required a $140 million infusion from its parent company after disclosing $175 million in funds locked in an FTX trading account.
The falling price of cryptocurrencies is also weighing on over-leveraged miners and hedge funds that have lent money to the sector, said Frank Holmes, chief executive officer of Hive Blockchain Technologies. Bitcoin’s price has fallen to less than $17,000 in the past few days from more than $20,000 earlier in the month.
“There are many more bankruptcies ahead,” Holmes said in a phone interview.
FTX breached its contract to buy Voyager out of bankruptcy, Sussberg told the judge overseeing Voyager’s Chapter 11 case. FTX has agreed to allow Voyager to pursue other offers, but has not yet confirmed that the now-bankrupt company is backing out of the deal to buy the smaller crypto firm, Sussberg said.
“We were shocked, upset, dismayed,” Sussberg said during a Voyager bankruptcy hearing. “There will be no transaction with FTX, I think that’s pretty obvious.”
All the troubles have longtime crypto skeptics repeating their warnings.
“It’s part fraud and part deception,” Berkshire Hathaway vice chairman Charlie Munger said Tuesday on CNBC. “It’s a bad combination. I don’t like cheating or deception. And the deception can be more extreme than the deception.”
Not all digital asset companies have been so unlucky. Celsius Network, the already bankrupt crypto lender plagued by mismanagement allegations, had reduced its exposure to FTX by 99% prior to the group’s collapse.
Celsius had a total of $3.6 billion in involvement with FTX in January, Chief Restructuring Officer Chris Ferraro said in a bankruptcy court hearing on Tuesday. That number is now closer to $13 million, he said, following a concerted effort to wean ourselves off third-party crypto platforms.
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