In a recent interview, Sam Bankman-Fried, the founder of the popular exchange FTX, warned that some crypto exchanges are “secretly insolvent” and may soon fail. Bankman-Fried’s FTX and Alameda Research have already helped Blockfi and Voyager Digital as the 30-year-old billionaire says sometimes you have to do “what it takes to sort of stabilize things and protect customers.”
Bankman-Fried’s FTX and Alameda Research Provide Credit Lines to Specific Crypto Firms
The crypto economy has been hit hard by the current bear market and Terra LUNA and UST fallout that took place last month. Terra’s downfall arguably started a significant domino effect that saw numerous exposed firms suffer sizable losses.
Many of the issues hurting the crypto community stem from massive leverage and most of the contagion effect is tethered to lenders and borrowers. Over two weeks ago, the crypto lender Celsius paused withdrawals, and ‘people familiar with the matter’ have said Celsius is dealing with notable financial hardships.
Three Arrows Capital (3AC), a crypto hedge fund based out of Singapore, allegedly fell victim to crucial liquidations and purchased $200 million of locked luna classic (LUNC) that’s now worth $700. The issues that derived from Terra, Celsius, and 3AC have seemingly trickled exposure down to other crypto firms as well.
Bankman-Fried’s quantitative cryptocurrency trading firm, Alameda Research, helped Voyager Digital cope with 3AC exposure by providing the firm with a $500 million line of credit. His crypto exchange FTX gave the crypto lender Blockfi a $250 million line of credit on June 21.
Bankman-Fried: ‘Some Companies Are Too Far Gone’ or ‘There’s Not Much of a Business Left to Be Saved’
Furthermore, Bankman-Fried spoke about 3AC on June 19, and explained on Twitter that 3AC’s financial hardships “couldn’t have happened with an onchain protocol that was transparent.” On June 28, 2022, Forbes author Steven Ehrlich did an interview with Bankman-Fried, and the FTX CEO was very candid about crypto exchanges that are “secretly insolvent.”
Bankman-Fried also spoke about the recent investments in Blockfi and Voyager, as the FTX CEO explained there’s a chance he may not get a return on his investment. “You know, we’re willing to do a somewhat bad deal here, if that’s what it takes to sort of stabilize things and protect customers,” Bankman-Fried told the Forbes contributor. The FTX CEO said that more platforms will bow out from financial burdens in the near future.
“There are some third-tier exchanges that are already secretly insolvent,” Bankman-Fried detailed. “There are companies that are basically too far gone and it’s not practical to backstop them for reasons like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved,” he added.
On May 27, 2022, Bankman Fried said that FTX was prepared to deploy billions on mergers and acquisitions. Bankman-Fried told Forbes that FTX is financially sound and has been profitable for 10 quarters.
He told Ehrlich that FTX was eyeing over-leveraged crypto miners. Bitcoin.com News has also recently reported that estimates say there’s currently $4 billion in distressed loans backed by crypto mining rigs. Bankman-Fried talked to Ehrlich about the largest stablecoin by market valuation, tether (USDT), as well. According to Ehrlich’s interview with Bankman-Fried, the FTX CEO is not concerned about tether.
“I think that the really bearish views on Tether are wrong… I don’t think there is any evidence to support them,” Bankman-Fried told the reporter.
Tags in this story
3AC, Balance Sheet, Blockfi, Celsius, exchange failures, exposed firms, Exposure, financially sound, ftx, Insolvency, insolvent, Liquidations, Mergers and acquisitions, paused withdrawals, regulatory issues, risk-on exposure, secretly insolvent, Steven Ehrlich, Terra, terra (LUNA), Terra UST, Tether, third-tier exchanges, Three Arrows Capital, USDT, voyager
What do you think about Bankman-Fried’s recent interview regarding the distressed crypto companies? Let us know what you think about this subject in the comments section below.
Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,700 articles for Bitcoin.com News about the disruptive protocols emerging today.
Image Credits: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.