In a dramatic turn of events, FTX filed for bankruptcy protection in the United States, with CEO and founder Sam Bankman-Fried resigning from his role.
This was after Binance pulled the plug on its acquisition of FTX in a remarkable turn of events, just a day after it announced its initial intention to acquire the crypto exchange company.
Despite the signing of the nonbinding agreement that would see Binance, the world’s biggest cryptocurrency exchange by trading volume, take over FTX non-U.S. business and its popular trading platform, which has been a linchpin in the dramatic rise of digital assets over the past year, the deal was called off.
Uncertainty in Singapore on FTX
This has put uncertainty into Singapore state investor Temasek’s investment FTX’s Series B and Series C funding rounds, which according to Forbes is estimated to be around US$ 205 million.
A Temasek spokesperson has said, “We are aware of the developments between FTX and Binance, and are engaging FTX in our capacity as a shareholder.”
Temasek’s investment in FTX dates back to July 2021 in the earliest round of Series B funding, which raised approximately SGD1.4 billion (US$1 billion) from several investors at a valuation of approximately SGD 25.2 billion (US$18 billion).
In October 2021, the state-funded investment company participated in the second round of funding together with the Ontario Teachers’ Pension Plan Board and Tiger Global, reiterating their confidence and belief in the long-term returns in the FTX, especially when the investments came at a time when cryptocurrencies are facing tighter regulatory scrutiny in the United States and around the world.
Amidst the heavy losses incurred by investors in Singapore, the Monetary Authority of Singapore (MAS) said yesterday that it did not have any cause to list FTX on the same basis as Binance, which it ordered to stop providing payment services to its residents in September.
However, although FTX does not operate in the island state; it is not possible to prevent users from directly accessing overseas service providers.
FTX’s struggle a precedence
According to Reuters, FTT, the native token by FTX, has not been performing well two weeks ago. With the news of the initial acquisition, it collapsed by 72 percent on Tuesday and was down five percent at a two-year low of SGD6.44 (US$4.61) on Wednesday.
Semafor reported that just hours before the announcement, FTX sought financing from investors in Silicon Valley and Wall Street, seeking bailouts amounting to SGD1.40 billion (US$1 billion). This is in stark contrast to the positive sentiments earlier this year, relocating from Hong Kong to the Bahamas and donating SGD13.98 million (US$10 million) to organizations in the Caribbean country. In April, it announced plans for an SGD83.88 million ($60 million) headquarters and hosting its second annual Crypto Bahamas conference at the Baha Mar resort in Nassau next April.
Binance further poured fuel into speculation by tweeting it would liquidate any remaining FTT on their books, citing “recent revelations.”
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 Binance (@cz_binance) November 6, 2022
Alameda Research, Sam Bankman-Fried’s crypto brokerage, had their balance sheet leaked with information that of its SGD20.41 billion (US$14.6 billion) in assets, roughly 40 percent were made up of FTT tokens, and this raised concerns among investors that with this much assets made up of native token, there might be potential manipulation of prices and favours that could push prices in certain ways.
In numbers about the acquisition that could have been
Bankman-Fried said the deal does not involve FTX.US or Binance.US, which are separate entities. FTX was valued at SGD44.74 billion (US$32 billion) in its most recent funding round in January this year, but both companies have declined to comment on the acquisition’s value, with many expecting a drop.
Binance’s announcement to sell its FTT plunged the token’s price to more than 75 percent, sparking a withdrawal of SGD8.39 billion (US$6 billion) just mere 72 hours after the announcement. And it was not just FTT that was affected. Reuters reported that Bitcoin is down 2 percent at SGD25514.32 (US$18,250) marking its worst day since mid-August, along with Ether, which lost nearly 18 percent since early Tuesday.
FTT price took a slight hike after the announcement about the acquisition was made, but Justin D’Anethan is not optimistic about the token and its brokerage’s prospects. D’Anethan, the institutional sales director at Amber Group, a Hong Kong-based digital asset platform, said “FTX reaching out to Binance highlights the fact that they were not okay financially, and that the jitters in the market, and suspicions about their inability to fulfill obligations were correct.”
He added “When a player of that size goes bust, it means its lenders are not getting repaid and all the token projects that Alameda was invested in will also suffer as Alameda does whatever it takes to cash out.”
According to data from Coin Metrics, Bitcoin, the largest and best-known digital currency, has lost nearly 9 percent to SGD37519.69 (US$26,848.20) since mid-April, dragged down by a combination of factors, including a crackdown on digital currencies in China.
Binance has also been hit hard by the market downturn, and its stock has lost more than half its value since January, with Zhao’s earnings dropping from SGD 135.59 billion (US$97 billion) to SGD15.38 billion (US$11 billion) in five months. Still, the exchange has been looking to expand its business through acquisitions, and the FTX deal would have been its biggest yet.
What now for investors?
Trading venues distanced themselves from FTX after they were investigated for abnormal transactions.
Kraken, a crypto trading platform, froze a handful of accounts owned by FTX Group, its sister trading company Alameda Research and their executives on Sunday after talking to law enforcement officers.
In a letter to the company’s investors, Galois Capital co-founder Kevin stated that roughly half of the company’s capital is locked up in FTX.
The crypto hedge fund company had admitted on the record that they did have “significant funds stuck on FTX” but had not employed “any Bahamian method to move funds out.”
“I expect we will recover some percentage of our assets on FTX over a few years,” the Galois Capital co-founder added.
Meanwhile, Sequoia Capital and Japanese investment conglomerate SoftBank Group Corp have marked their FTX investments down to zero dollars.
Sequoia said in a letter posted on Twitter that its Global Growth Fund III invested US$150 million in FTX.com and FTX US, while the Sequoia Capital Global Equities fund invested US$63.5 million.
Binance and other smaller cryptocurrency companies, such as Crypto.com and OKX, have promised to publish proof of sufficient reserves to match their liabilities to customers.
Changpeng Zhao Binance CEO said that Bankman-Fried lied to his users, his shareholders and regulators. Zhao also said that Bankman-Fried is largely responsible for the collapse of FTX.
However, some responsibility should be on venture capitals firms and others that invested in FTX as they didn’t uncover the problems in the crypto exchange said Zhao.
In a series of tweets, Bankman-Fried apologised, saying “I’m really sorry, again, that we ended up here.
“Hopefully things can find a way to recover. Hopefully, this can bring them some transparency, trust, and governance.”
He also said he “was shocked to see things unravel the way they did.”
Investors are now at the mercy of the FTX bankruptcy process and may have to wait before accessing their funds.
2) I’m really sorry, again, that we ended up here.
Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to them.
Ultimately hopefully it can be better for customers.
— SBF (@SBF_FTX) November 11, 2022