​FTX’s balance sheet hole has reached $8 billion. The exchange faces bankruptcy

What’s new? On November 9, Sam Bankman-Fried, the head of the FTX crypto exchange, told investors that the trading platform needs a cash injection. Without funds, he said, the company would be forced to file for bankruptcy. According to a Bloomberg source, Bankman-Fried told investors that his exchange is facing an $8 billion shortfall and needs $4 billion to remain solvent. FTX is trying to raise financing through debt, equity, or a combination of the two. The source specified that the conversation with investors took place before the Binance crypto exchange rejected the takeover of FTX.

Bloomberg’s material

More details on the situation. According to Semafor, most of FTX’s legal and compliance staff resigned back on November 8.

On November 9, analyst Colin Wu reported that some employees could not withdraw their assets from the platform. In addition, according to these employees, they have no idea about the relationship between FTX and trading company Alameda Research, also owned by Bankman-Fried. That said, some employees continue to buy FTX’s (FTT) native tokens because they trust the company, Wu writes.

Several FTX employees told us that their coins cannot be withdrawn in FTX, and have no idea of the relationship between Alameda and FTX, some employees even continue to buying FTT in these days because the trust of company. They felt that the SBF needed to explain. https://t.co/DLeB51vFvk— Wu Blockchain (@WuBlockchain) November 9, 2022

On November 10, Watcher Guru published a screenshot from FTX’s website, stating that the platform suspends new customer registrations and warns users against making deposits. Processing of withdrawal requests has also been suspended.

JUST IN: FTX․com suspends all onboarding of new clients and warns users against depositing. pic.twitter.com/zmRKmC8Ly3— Watcher.Guru (@WatcherGuru) November 9, 2022

FTX’s list of known sponsors includes Sequoia Capital, BlackRock, Tiger Global Management, and SoftBank Group Corp. On November 10, Sequoia wrote down the full value of its stakes in FTX and FTX.US (the US arm). In a letter to investors, the company attributed this to FTX’s “liquidity crunch” and “solvency risk,” adding that at this time “the full nature and extent of this risk is not known.” Last year, the venture capital firm invested about $214 million in FTX’s international and US businesses.

Here is the note we sent to our LPs in GGFIII regarding FTX. pic.twitter.com/Cgp1Yxk1pz— Sequoia Capital (@sequoia) November 10, 2022

Bankman-Fried assured investors until the last minute that Binance would not back out of the takeover. However, information about the deal’s termination was soon confirmed. Changpeng Zhao said in an official statement from the exchange that as a result of corporate due diligence, as well as recent news reports of misuse of customer funds and alleged investigations by US regulators, it was decided not to take over FTX. Binance officials added that they had hoped to support FTX’s customers by providing liquidity, but “the issues are beyond <Binance>’s control or ability to help.”

As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.— Binance (@binance) November 9, 2022

Bloomberg writes that the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are investigating FTX’s handling of customer funds as well as the exchange’s relationship with Alameda. The Department of Justice officials are also working with SEC attorneys, one of the publication’s interlocutors said.

FTX’s liquidity problems became known on November 2, when the media published a report stating that most of Alameda’s capital is FTT. After that, Binance began a complete liquidation of its positions in FTT, and the rate of the token began to fall rapidly. As of November 10, 07:35 UTC, the asset is trading at $2,76, having lost 45,6% of its value in 24 hours, according to Binance.

Less than a day after the start of the due diligence, sources close to Binance reported that the exchange was leaning towards not acquiring FTX. Zhao had also previously said that FTX’s crash had shaken the credibility of the entire crypto industry, and would potentially lead to increased regulatory scrutiny and make it harder for other cryptocurrencies to obtain licenses.

CoinMetrics suggested that FTX lost its solvency as a result of its $4,19 billion bailout to Alameda. As a result of the collapse, the fortune of the head of both companies crashed by 93,6%.

To find out what implications await the crypto market after FTX’s collapse, see GetBlock Magazine’s article.