FTX’s Bankman-Fried scrambles for funds after Binance deal collapse

HONG KONG/SINGAPORE/NEW YORK, Nov 10 (Reuters) – FTX Chief Executive Sam Bankman-Fried on Thursday launched an urgent push to raise funds to save his firm as the crypto exchange appears to be plugging a reported $8 billion hole in its finances, according to tweets and memo to employees.

Bankman-Fried said he was in talks with “several players” in the crypto sector, including Justin Sun who is the founder of crypto token Tron, after a potential rescue deal with big rival Binance fell apart. But he added in the memo that he did not want to “express anything about the possibility of success.”

He also said his firm Alameda Research, which sources say is partly behind FTX’s problems, is winding down the trade.

The scramble marks a stunning downfall for the 30-year-old crypto executive, who in a matter of days changed from his status as the savior of the industry to one who needed saving.

Problems at FTX, one of the world’s largest crypto exchanges, have fueled a wider crisis of confidence in cryptocurrencies, with bitcoin falling below $16,000 overnight for the first time since late 2020.

However, a surge in the broader market after better than expected US inflation data also buoyed cryptocurrencies in late morning trading. FTX’s native token, FTT, is down more than 90% this week and is trying to stay around $3.50. Bitcoin is trading at $17,428, up 11%.

Sun, the founder of the cryptocurrency network Tron, said in a tweet on Thursday “we are putting together a solution together with #FTX to initiate a path forward,” without giving further details. Sun did not respond to a request for comment.

An FTX spokesman declined to provide additional details about the talks.

COLLECTION OF FUNDS

The seeds of FTX’s downfall were sown months earlier, in a mistake made by Bankman-Fried after he stepped in to save another crypto firm, sources said.

Users rushed to withdraw $6 billion in crypto tokens from FTX in a few days, after news reports earlier this month raised questions about Alameda’s balance sheet and Binance CEO Changpeng “CZ” Zhao tweeted that his firm would sell all of its shares in the FTX token, FTT. Outflow causes liquidity crunch in FTX.

In a memo, seen by Reuters, Bankman-Fried said for the next week he will “do a boost” to do right by customers and “possible new investors”.

Another exchange, OKX, said it had been reviewed earlier in the week by Bankman-Fried, which represented liabilities of $7 billion that needed to be covered quickly.

“It’s too much for us,” Lennix Lai, director of financial markets at OKX, told Reuters.

Bloomberg reports that Bankman-Fried has told investors that FTX is experiencing a shortfall of up to $8 billion and that the company will have to file for bankruptcy unless it receives further funding.

RISK OF CONTAGION

Some investors are writing off funds plowed into FTX. Venture capital fund Sequoia Capital wrote its $150 million exposure to zero on Wednesday. Canada’s Ontario Teachers Pension Plan, Tiger Global and Japan’s Softbank are also FTX investors.

One focus among investors is on the unknown size of customer losses and the hit to sentiment from the latest collapse and the biggest possibility in the industry that has turned into a minefield for investors.

Asset manager Crypto Coinshares said it has $30.3 million in total exposure to FTX.

Broker Robinhood (HOOD.O) said it has no direct exposure to FTX, but Bankman-Fried holds a stake in the mouth and usually falls heavily on Tuesday and Wednesday.

“A top exchange failed – it’s on a different level,” said Danny Chong, CEO of decentralized finance firm Tranchess, with potentially wider ramifications than the failure of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital this year.

US securities regulators are investigating FTX.com’s handling of customer funds and crypto-lending activities, according to sources with knowledge of the investigation.

A message on the FTX website says it is no longer processing withdrawals or accepting new users. Bankman-Fried said FTX.US, the US exchange operation, however, has not been impacted financially.

Bankman-Fried, who is from California but lives in the Bahamas where FTX is based, said the company will take a “hard look” at the government. “I wouldn’t be here if I wasn’t wanted,” he wrote in a tweet thread.

Reporting by Angus Berwick in New York; Georgina Lee in Hong Kong and Tom Westbrook in Singapore; Elizabeth Howcroft in London Writing by Paritosh Bansal Editing by Megan Davies, Anna Driver and Matthew Lewis

Our standards: Thomson Reuters Trust Principles.

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