The beleaguered cryptocurrency industry and its wealthy pioneers face a moment of reckoning after the collapse of cryptocurrency exchange FTX and hedge fund Alameda Research.
In January 2022, Sam Bankman-Fried was riding high. Bahamas-based FTX had just raised $400 million from high-profile venture capitalists at a valuation of $32 billion. A few weeks later when Forbes Published its annual World Billionaires List, SBF, as he is known, was the second richest person in cryptocurrency, with a net worth of $24 billion.
Now, Bankman-Fried is likely bankrupt, and awaiting trial. Prior to his arrest in the Bahamas, the SBF told several media outlets that his bank account was down to $100,000, and that he was “not sure” how to pay his lawyers. Gary Wang, FTX’s other co-founder and former CTO of the company – who struck a deal with the Securities and Exchange Commission – has also seen his fortune, previously valued at about $5.9 billion, go to waste.
The demise of FTX was a fitting end to a year of wealth destruction in the cryptocurrency and blockchain sector. The post-pandemic economic shock, which caused inflation and soaring interest rates, pulled capital out of the speculative crypto ecosystem. Notable companies have imploded, from the $40 billion collapse in May of the algorithmic stablecoin TerraUSD, to crypto hedge fund Three Arrows (which declared bankruptcy in July), to the bankruptcies of interest-bearing lenders Voyager Digital, Celsius and BlockFi. Bitcoin, the largest cryptocurrency and industry leader, is down 65% from a peak of $69,000 in November 2021. Meanwhile, about $2 trillion in market capitalization has fled digital assets for safer pastures.
As a result, the 17 wealthiest cryptocurrency investors and founders have collectively lost an estimated $116 billion in personal wealth since March, according to Forbes estimates. Fifteen of them have lost more than half of their wealth over the past nine months. Ten have completely lost their billionaire status.
“We are now at a breaking point in cryptocurrency where everyone is going to have to stop and say, ‘Okay, we’ve seen a lot of economic wealth destroyed in the last couple of months, we need to start taking this seriously,’” says Matt Cohen, founder of Ripple Ventures. , a venture capital firm. “A lot of blockchain technologies and crypto companies have built solutions to problems that don’t need to be fixed, and I think we’re going to do a factory reset now.”
The man to lose the most is Changpeng Zhao, CEO of the largest cryptocurrency exchange, Binance, a sprawling global network of shadowy affiliates. Czechoslovakia, as it is known, has an estimated 70% stake in Binance, which Forbes Valued at $4.5 billion — down from $65 billion in March.
CZ helped start the demise of FTX on November 6 when it was chirp Binance wants to sell what remains of FTT, FTX’s native cryptocurrency. This triggered FTX vaults as customers rushed to withdraw their money, only to find it was gone. FTX declared bankruptcy a few days later. Zhao beat his rival, but now he has to face the consequences. This could include recovery in bankruptcy court of over $2.1 billion that Binance made from selling its stake in FTX back to Bankman-Fried in the summer of 2021. (Zhao helped create FTX in 2019).
CZ also faces growing suspicion of centralized exchanges, particularly Binance, and ongoing investigations of him and his company by authorities in Europe and the US over allegations of facilitating money laundering and other financial crimes. (Binance has denied any wrongdoing.) In recent weeks, CZ has sought to reassured Binance users say their crypto deposits are fully backed, and tasked accounting firm Mazars with producing “proof of reserves” reports. This data, which does not include liabilities, has been widely criticized as insufficient to provide an incomplete snapshot of a company’s financial health. Since then, Mazars has ceased its work with crypto firms, adding to uncertainty about Binance’s finances – and the future of the exchange.
“I don’t think any company can survive, operating in this amorphous way, not being governed by anyone or anywhere, especially when it’s run by a public individual,” says Lisa Ellis, equity analyst at MoffettNathanson, a division of SVB Securities. Ellis adds that Binance’s “dodgy operating model” will not be “a start for many investors, both public and private.”
CZ stated in a webinar on December 23 that Binance does not have any obligations: “We are a completely unique institution, we do not have loans from any other institutions,” he said. We will prove all FUD [fear, uncertainty and doubt] Wrong.” A Binance spokesperson said Forbes’ estimate of CZ net worth “is not a significant metric for CZ. Even more important is creating beneficial use cases for cryptocurrency.”
Barry Silbert, President of Digital Currency Group, is at the heart of the cryptocurrency market infection. One of DCG’s main assets, crypto-lending unit Genesis Global Capital, owes creditors at least $1.8 billion, according to a source familiar with the matter (and also Reuters reported for the first time). In addition, DCG is heavily indebted. It assumed a $1.1 billion commitment from Genesis, which stemmed from a bad loan Genesis made to the now-bankrupt Three Arrows hedge fund. Separately, DCG owes Genesis another $575 million, which is due in May. DCG also owes $350 million to investment firm Elridge if Genesis goes under. financial times mentioned.
To stay afloat, Silbert will likely have to raise outside capital or break up his DCG crypto empire, which includes about 200 investments in crypto and token companies, including the crypto news site CoinDeskFoundry and Grayscale Investments, a bitcoin mining company that offers shares in the Bitcoin Public Traded Fund. Forbes estimate the value of DCG’s outstanding liabilities to be greater than the fair market value of its assets in the current market environment; DCG may also struggle to offload illiquid bets. for these reasons, Forbes The current value of Silbert’s 40% stake in DCG is estimated to be around $0. Silbert’s personal investments could not be identified. A DCG spokesperson declined to comment.
“They had a solvency problem with Genesis, which turned into a liquidity issue. Genesis creditors would have claims on DCG’s assets even if Genesis files for bankruptcy,” says Ram Ahluwalia, CEO of crypto-focused Lumida Wealth Management, who notes that Genesis’s creditors will have claims on DCG assets. It doesn’t disappear.” If DCG doesn’t raise new equity capital, it will be seen as a zombie business.”
Cameron and Tyler Winklevoss, Bitcoin Billionaires Immortalized in social network For their role in founding Facebook, they were also discovered in Silbert’s lending network. Gemini, the twin’s cryptocurrency exchange, offered its users up to 8% returns during the bull market through their Gemini Earn product, which outsourced loan provisioning to Genesis; Now Gemini customers owe Genesis nearly $900 million. On November 16, Genesis suspended withdrawals, causing outrage among customers. Gemini Dollar, the exchange’s stablecoin and the main component of Gemini Earn’s lending program, has seen significant outflows. Winklevii has remained quiet, aside from sparsely worded Twitter updates about Gemini forming a creditors committee.
For Brian Armstrong, CEO of the publicly traded exchange Coinbase, the collapse of FTX presented an opportunity to strike. On November 8, in the chaotic hours following Binance’s announcement of its temporary acquisition of FTX, Armstrong announced his cryptocurrency vision while penning Binance’s Zhao. Coinbase and Binance are taking different approaches. Armstrong said about Unbanked Podcast. “To look at it intellectually honestly, we choose to follow the rules. It’s a more difficult path and sometimes you have your hands tied, but I think that’s the right strategy in the long run.” in 13 tweets thread On the same day, Armstrong repeated those themes.
Investors don’t seem to care. Coinbase stock is down 64% since August and over 95% from its $100 billion IPO in April 2021, wiping out much of Armstrong’s fortune.
Meanwhile, Coinbase co-founder Fred Ehrsam was burned by Bankman-Fried. His cryptocurrency company, Paradigm, has invested $278 million in FTX equity. Ehrsam did not make any public statements about the investment. Matt Huang, Ehrsam Partner at Paradigm, he said on Twitter“We deeply regret our investment in a founder and company that ultimately did not align with cryptocurrency values and severely damaged the ecosystem,” adding that Paradigm’s equity investment in FTX “constituted a small portion of our total assets” and that this model never entrusted FTX with holding any of its digital asset investments.
Private crypto companies that raised capital in 2021 or earlier this year at high valuations are trading at deep discounts in the secondary markets and in OTC deals, says Matt Cohen of Ripple Ventures. Where companies prepare investor reports at the end of the year. “The fourth quarter audit season will be when the rubber meets the road on which funds will be properly identified,” he says.
Shares of NFT exchange OpenSea, for example, are trading at a 75% discount since January, when OpenSea was valued at $13.3 billion, according to data from private market exchanges ApeVue and CapLight. Daily trading volumes on OpenSea’s NFT exchange were less than $10 million last month, compared to more than $200 million in January, according to crypto website DappRadar. The 30-something founders of OpenSea, Devin Finzer and Alex Atallahh, are no longer billionaires.
Nikhil Viswanathan and Joe Lau, the founders of Alchemy, a crypto-software company that runs other Web3 projects, also left the three-compartment club, based on estimated cuts to their stakes in Alchemy, which last raised outside equity in February at $10.2. billion ratings. According to Viswanathan, the collapse of FTX “harms consumer perception of [crypto] Void. We saw this play at Lehman Brothers and the collapse of Bernie Madoff in 2008 — it takes time to recover.” Alchemy, however, continued to grow throughout the bear market, Viswanathan says. Times are in turmoil, indicating an incredibly strong community of builders driven by missions.”
Jed McCaleb, co-founder of cryptocurrency firm Ripple, is believed to be the only person who made his fortune in cryptocurrency to hold most of his fortune during the economic downturn. But that’s because it was almost completely sold out before the crash. McCaleb offloaded $2.5 billion worth of XRP, Ripple’s native token, between December 2020 and July 2022, fulfilling a separation agreement he signed with other Ripple founders in 2013. Today, XRP trades at around $0.40 per coin, down about 50% from Back in the year, McCaleb was dumping millions of dollars worth of XRP coins every week.
Chris Larsen, the other co-founder and CEO of Ripple, has lost more than $2 billion this year, due to the XRP price drop and Forbes Estimated discount to Ripple’s equity valuation. Ripple, which last raised capital in 2019 at a valuation of $10 billion, bought back shares from an investor last year at an overvalued $15 billion after that investor sued Ripple in connection with a lawsuit filed by the Securities Commission. Finance and Exchanges v. Ripple in December 2020; This case is still making its way through the courts.
Tim Draper, a venture capitalist who owns around 30,000 bitcoins, fell out of favor with the billionaire earlier this year, when bitcoin hit $33,000. As always, Draper remains optimistic about Bitcoin’s future, even though his oft-repeated $250,000 price target looks fantastical every day. “I think this is the beginning of the end for tokens,” says Draper. Forbes. “If the token is centralized, you are at the mercy of the person who controls the currency. And that was certainly the case with FTX.”
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