FTX hurtles toward bankruptcy with $8 billion hole

The crisis engulfing Sam Bankman-Fried’s FTX.com is rapidly worsening, with the onetime crypto wunderkind warning of bankruptcy if his firm can’t secure funds to cover a shortfall of as much as $8 billion.

Bankman-Fried informed investors of the gap on Wednesday, shortly before rival exchange Binance abruptly scrapped a takeover offer. He said FTX.com needed $4 billion to remain solvent and is attempting to raise rescue financing in the form of debt, equity, or a combination of the two, according to a person with direct knowledge of the matter.

“I f---ed up,” Bankman-Fried told investors on the call, according to people with knowledge of the conversation. He said he would be “incredibly, unbelievably grateful” if investors could help.

An FTX representative declined to comment.

The acknowledgment of his firm’s deepening troubles and limited options is a stunning turn for Bankman-Fried, who was once worth $26 billion and likened to John Pierpont Morgan. It also underscores the uncertainty hanging over FTX, its clients and cryptocurrency markets.

U.S. authorities are investigating FTX, the vast bulk of Bankman-Fried’s wealth has evaporated and rivals are benefiting from his woes. Robinhood Markets Inc. has seen its biggest crypto inflows ever in the last two days, Chief Executive Vlad Tenev said Thursday. Binance and Coinbase Global Inc. have also seen large inflows, data from CryptoQuant show. 

Investor Sequoia Capital wrote down the full value of its holdings in FTX.com and FTX.us, an indication that the firm sees no clear path to recouping its investment.

BIG-NAME BACKERS

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 saw billions in client money tied up in bankruptcy proceedings.

FTX has a prominent list of backers such as Sequoia Capital, BlackRock Inc., Tiger Global Management and SoftBank Group Corp. 

Still, Bankman-Fried remained defiant during a hectic period of roughly 24 hours that included mounting speculation that Binance wouldn’t 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 person 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 Zhao, said in a statement.

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

The Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating whether the firm properly handled customer funds, as well as its relationship with other parts of Bankman-Fried’s crypto empire, including his trading house Alameda Research, Bloomberg News reported Wednesday. Officials from the Justice Department also are working with SEC attorneys, one of the people said. 

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 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.