Crypto markets rattled as FTX warns of bankruptcy without $8bn after Binance pulls out

The crypto market was turbulent after Binance walked away from buying FTX with Bitcoin, the largest token by market value, plunging almost 16 per cent on Wednesday. Reuters

Sam Bankman-Fried told FTX.com investors Wednesday that without a cash injection the company would need to file for bankruptcy.

On a call before Binance pulled an about-face and dropped its takeover offer, Mr Bankman-Fried informed investors that his crypto exchange faced a shortfall of up to $8 billion and needed $4bn to remain solvent, a source said.

FTX is attempting to raise rescue financing in the form of debt, equity or a combination of the two, the source added.

Mr Bankman-Fried told investors on a call he would be “incredibly, unbelievably grateful” if investors could help, according to people with knowledge of the conversation.

An FTX representative declined to comment.

The acknowledgement of his company's deepening troubles and limited options is a stunning turn for the crypto industry’s onetime wunderkind, who was once worth $26bn and likened to John Pierpont Morgan. It also underscores the uncertainty hanging over FTX, its clients and cryptocurrency markets.

Hanging in the balance as the exchange teeters is not just the fate of its investors and lenders but anyone who has been unable to retrieve customer assets since it halted some withdrawals earlier in the week.

The failure of crypto firms Celsius and Voyager led to billions in client money being tied up in bankruptcy proceedings.

FTX has a prominent list of backers such as Sequoia Capital, BlackRock, Tiger Global Management and SoftBank Group. Sequoia wrote down the full value of its holdings in FTX.com and FTX.us, an indication that the company sees no clear path to recouping its investment.

Still, Mr Bankman-Fried remained defiant during a hectic period of roughly 24 hours that included mounting speculation that Binance would not go through with the deal.

He repeatedly told investors during the conference call on Wednesday afternoon that it was simply not true that Changpeng Zhao was walking away from the takeover, the source said.

About an hour later, Binance said it was indeed backing out.

“Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance, the crypto exchange founded by Mr Zhao, said in a statement.

In addition to the financial strains, FTX is drawing attention from the US authorities.

The Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating whether the company properly handled customer funds, as well as its relationship with other parts of Mr Bankman-Fried’s crypto empire, including his trading house Alameda Research, Bloomberg News reported on Wednesday.

Officials from the US Justice Department also are working with SEC attorneys, a source said.

Mr Zhao said in a memo earlier on Wednesday that there was no “master plan” to take over FTX, and that “user confidence is severely shaken”.

The renewed concern about contagion risk is showing up in the plunging prices of digital assets. Bitcoin fell below $16,000, the lowest in two years, after Binance’s announcement.

Coinbase chief executive Brian Armstrong said on Tuesday in a Bloomberg TV interview that if the deal with Binance fell through, it would likely mean FTX customers would take losses.

“That’s a not a good thing for anybody,” he said.

Crypto markets have been roiled by the saga involving FTX, which until just a few days ago was seen as one of the top entities.

Bitcoin, the largest token by market value, had plunged almost 16 per cent on Wednesday. It reached a record high of almost $69,000 a year ago. FTT, the utility token of the FTX exchange, is down 92 per cent this week, and was trading around $1.94.

The FTX-Binance saga calls to mind the turmoil involving Celsius — the crypto lender that collapsed earlier this year — as well as those seen by other companies that were engulfed in this year’s crash in digital assets.

Cryptocurrencies regained some ground following Wednesday’s plunge, offering investors a respite from a rout fuelled by Binance’s withdrawal of its offer to buy FTX.com.

Bitcoin rose as much as 4.4 per cent after tumbling as low as $15,574, a level unseen since November 2020. Ether climbed 3.6 per cent. The MVIS CryptoCompare Digital Assets 100 Index was down 3.9 per cent as of 10.23am in Singapore on Thursday, after having fallen as much as 6.8 per cent.

“Expect the unexpected in the days ahead,” Genesis Trading analysts Ainsley To and Gordon Grant wrote in a note on Wednesday that highlighted the explosion of volatility across the crypto-markets complex.

This article includes reporting by Bloomberg

Cryptocurrencies — in pictures

The crypto market, which includes currencies such as Bitcoin, pictured, has lost $2 trillion of its value in six months. Unsplash

The price of Ethereum, the second largest cryptocurrency by market size, has fallen by 70 per cent this year. Investors and analysts are watching to see if it will dip below $1,000. Unsplash

Dogecoin, supported by Elon Musk, is about 90 per cent down from May last year, yet it is outperforming Bitcoin and Ethereum in the current crash. Unsplash

The government of El Salvador has invested $105 million in Bitcoin. President Nayib Bukele's embrace of the cryptocurrency as legal tender is being questioned as the market crashes. Getty

Changpeng Zhao, founder of crypto exchange giant Binance, has compared the current market turmoil to the dotcom bubble of the early 2000s. Still, the company is aggressively pursuing licensing in international jurisdictions and introducing new products. Getty

Tether is the biggest issuer of stablecoins, a type of cryptocurrency pegged to a traditionally stable asset like the US dollar. Most stablecoins are meant to maintain a constant price of $1 and are backed by real reserve funds, making it easy to convert crypto investments into cash. But Tether's financial statements show that may not be true, leaving the issuer and its investors vulnerable. Unsplash

The recent crypto crash can in part be attributed to the collapse of TerraUSD, a stablecoin pegged to the US dollar through algorithms and linked to a "sister" cryptocurrency named Luna. When the price of Luna plummeted, TerraUSD also fell, creating a “death spiral” to practically zero for both coins. Unsplash

On June 12 crypto lender Celsius Network said it had paused customer withdrawals, saying it needed “to stabilise liquidity and operations”. Investors are still waiting, with no signs that the current meltdown will let up. Getty