Pensioners, Investment Firms and Sovereign Wealth Funds Lose Big Amid FTX Bankruptcy

FTX, the Bahamas Cryptocurrency Exchange Founded by Sam Bankman-Fried, Filed for Chapter 11 bankruptcy protection in the United States Friday, as well as more than 130 affiliates.

It comes after the exchange halted user withdrawals due to insufficient liquidity, a Bankman-Fried problem assured would not affect their US platform. FTX US is, however, one of the companies deposit for chapter 11.

The Bahamas Securities Commission has frozen FTX’s assets and is investigating whether the company’s actions were illegal. U.S. authorities are also investigating Bankman-Fried to determine whether he violated securities rules, according at Bloomberg.

Much wealth was destroyed for FTX investors, online exchange users and Bankman-Fried himself as a result of this fiasco.

Once hailed as the “new John Pierpont Morgan” and amassing a net worth of $26.5 billion, Bankman-Fried has, within days, fallen out of favor and officially lost his billionaire status, according at Forbes.

FTX users are potentially focused towards $8 billion in cumulative losses as the company scrambles to make up the shortfall. Many are sounding the alarm over the billions FTX has lent to sister company Alameda Research, with The Wall Street Journal to accuse FTX to use “customer accounts to fund risky bets”.

“If these are the facts, it looks like this may be the biggest brokerage financial fraud ever, across any asset class,” said Gene A. Grant II, Founder and CEO of LevelField Financial, says fortune.

Investors in the company risk losing their entire investment as a result of bankruptcy. “Based on our current knowledge, we are reducing our investment to $0,” said venture capital firm Sequoia Capital. said on Twitter Wednesday in reference to his $150 million loss.

Other notable investors to understand Singaporean public company Temasek and the Ontario Teachers’ Pension Plan (OTPP), which invested $205 million and $95 million, respectively. Teachers’ manages the retirements of 330,000 teachers and prides itself on having “a proven track record of steady returns” on its website.

The FTX issue has shaken the digital asset markets widely.

(Courtesy of CFA Institute’s 2022 Investor Confidence Study)

According to a investigation by the CFA Institute, government pension funds looking for high yield have plunged headlong into the digital asset space, with 94% of funds surveyed claiming to own crypto-related assets.

Bitcoin fell below the $16,000 level on Wednesday, prices not seen since November 2020. Ethereum and Dogecoin were down 20% and 27% respectively on the week.

Crypto investors are in disarray as critics take long-awaited victory laps.

“I don’t want to call it fraud right now because it’s a legal term and none of us know it,” Anthony Scaramucci, founder of digital asset-focused SkyBridge Capital and personal friend of Bankman- Fried, told CNBC. “You have to leave that to the regulars. But I’m distressed. »

“A year ago, Bitcoin reached $69,000,” Peter Schiff, chief economist at Euro Pacific Capital, posted on Twitter Friday. “FTX bankruptcy proves the whole rally was a fraud. This will never be repeated. The bitcoin craze is over.

As the company tries to salvage the day, Bankman-Fried was replaced as CEO by John Ray, a seasoned litigator known for cleaning up the Enron scandal in 2001, “Joint Process,” share the new CEO of FTX.

Some market commentators say FTX’s bankruptcy could be worse than that of Enron.

The FTX crisis follows a survey by Banklesstimes.com showing that a third of Americans to believe cryptocurrencies are scams or Ponzi schemes.

Liam Cosgrove

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Liam Cosgrove works as a freelance journalist covering business, markets and finance. He received his bachelor’s degree in mathematics from the University of California, Santa Barbara.