(Kitco News) - It's day two of the fallout resulting from the collapse of the cryptocurrency exchange FTX, and the ramifications are wide-reaching. Just as the contagion from the fall of Terra/Luna spread across the ecosystem earlier in the year, the implosion of FTX will ripple across the community affecting large institutions and retail traders alike.
With the dust far from settled and FTX CEO Sam Bankman-Fried (SBF) still in negotiations with Binance CEO Changpeng "CZ" Zhao, many of the investors in the flailing exchange have been left in the dark.
This uncertainty prompted SBF to issue a letter of apology to investors about the lack of communication and reassure them that protecting customers is a top priority for the exchange, followed by the interests of shareholders. Aside from that, the beleaguered CEO was scant on additional details, saying, "I wish I had more details for you guys right now; I don't yet."
The list of backers for the exchange is extensive; it includes the likes of BlackRock, Ontario Teachers Pension Plan, Sequoia, Paradigm, Galaxy Digital, Tiger Global, SoftBank, Circle, Ribbit Capital, Alan Howard, Multicoin Capital, VanEck and Temasek, to name a few.
Galaxy Digital, which had extensive ties with the now-defunct Terra/Luna protocol, reportedly had $76.8 million in exposure to FTX, with $47.5 million of that currently "in the withdrawal process," according to the company's Q3 earnings statement.
The crypto-focused venture capital firm Multicoin Capital has been significantly impacted by the collapse of FTX as around 10% of its total assets under management (AUM) are still pending withdrawals on the exchange, according to the letter sent to investors.
"Unfortunately, we were not able to withdraw all of the Fund's assets on FTX," the letter said. "Assets including BTC, ETH, and USD are pending withdrawal and represent approximately 15.6% of the assets in the Fund (excluding side pockets) and approximately 9.7% of total Fund AUM."
Circle CEO Jeremy Allaire has compared the current crisis facing FTX to the Lehman Brothers collapse in 2008. "Finally, as someone who's been involved in this industry for 10 years, it is disappointing that a technology that was spawned in reaction to the Lehman Brothers moment of 2008 has given rise to its own version of the same," he said.
Exchange Exodus amid collapsing prices
The struggles of FTX have led concerned investors to withdraw funds from cryptocurrency exchanges from across the ecosystem.
According to Alex Svanevik, CEO of the blockchain analytics platform Nansen, approximately $1 billion in Ether has been withdrawn from crypto exchanges in the past 24 hours, along with $950 million in USDC Coin (USDC), $400 million in Tether (USDT) and $195 million in Binance USD (BUSD).
Many of the tokens associated with FTX are also experiencing significant losses. FTT, the native token of the FTX exchange, has lost 75% of its value over the past 24 hours and 85% over the past two days, crashing from a high of $25.78 to its current value of $4.78.
Solana (SOL), a layer-one protocol that has been heavily supported by SBF, has seen its price fall 58% from a high of $38.80 on Saturday to trade at $16.12 at the time of writing. The Solana-based decentralized exchange Serum (SRM) has also been hard hit, with its price falling 39% over the past 24 hours to trade at $0.41.
Out of the top 200 tokens, FTT, SOL and SRM have been the worst performers over the past 24 hours and continue to face mounting pressure as the fate of FTX remains uncertain. At the time of writing, rumors have begun circulating that a person familiar with the matter said that Binance is highly unlikely to go through with the FTX acquisition after a review of the company's finances.
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| Crypto exchange wars: Binance vs. FTX |
Contagion spreads to the stock market
Crypto-related stocks also took a hit amid the FTX fallout. Mining firm Core Scientific saw its stock price plummet nearly 16% on Tuesday but managed to recover 3% during pre-market trade on Wednesday. Hut 8 Mining Group and Digihost Technology have both seen their share prices drop 12%.
The top U.S. crypto exchange Coinbase has seen its stock price take a 20% hit from its highs on Tuesday, while Robinhood's stock price tanked 28.14% from its highs on Monday. Both platforms have seen a decrease in crypto trade volumes over the past two days.
Perhaps the biggest loser in all of this is SBF, who has seen his net-worth plunge from $15.6 billion on Nov. 8 to around $1 billion currently, which is the "biggest one-day collapse ever among billionaires tracked by Bloomberg."
More than anything, the collapse of FTX serves as a wake-up call for crypto proponents who had gotten a little too trusting in centralized exchanges and lost sight of the fact that, "not your keys, not your crypto."
"FTX's collapse has sent shockwaves through the crypto industry at a time when it can least afford it. But it's the user that's going to be hit hardest. This latest collapse is more proof (if any was needed) that people need to understand the risks of using centralized exchanges," said Nick Saponaro, co-founder and CEO of Divi Labs.
"Exchanges like FTX are not crypto or blockchain companies. They are essentially banks with less regulation, oversight, and, most importantly, responsibility to the consumers they serve. Users have a choice. They can allow a third party to take custody of their funds, or they can take control of their own funds through self-custody," he concluded.
