In a note to partners, venture capital firm Sequoia announced it had reduced its $150m (£130m) investment in FTX to nothing. “In recent days, a liquidity crisis has created a solvency risk for FTX. The full nature and extent of this risk is not known at this time. Based on our current understanding, we mark our investment at $0,” the investors wrote, in a message signed by Team Sequoia. Binance and FTX logos. Photo: Dado Ruvić/Reuters Other investors have lost similar amounts, including the Ontario Teachers’ Pension Plan, which last year invested about $400 million in the stock market, valuing FTX at $25 billion. The cryptocurrency market has come under pressure following the FTX crisis, with digital asset bitcoin down 7.6% in the past 24 hours to $16,775 and the second largest, ethereum, down 4.4% to $1,205 . Q&A
What is cryptocurrency?
projection Cryptocurrencies are an alternative payment method to cash or credit cards. The technology behind it allows ‘money’ to be sent directly to others without having to go through the banking system. For this reason they are outside the control of governments and not controlled by financial watchdogs – and transactions can be made in a way that keeps you reasonably pseudonymous. If you own a crypto asset, you control a secret digital key that you can use to prove to anyone on the network that a certain amount of that asset is yours. If you spend it, you’re telling the entire network that you’ve transferred ownership of it, and you’re using the same key to prove you’re telling the truth. Over time, the history of all these transactions becomes a permanent record of who owns what: this record is called a blockchain. Bitcoin was one of the first and biggest cryptocurrencies and has been booming since its creation in 2009, sometimes rising in value as investors piled in – and recently crashing again. Skeptics warn that the lack of central control makes crypto-assets ideal for criminals and terrorists, while libertarian monetarists relish the idea of a currency without inflation and without a central bank. The whole concept of cryptocurrencies has been criticized for its ecological impact, with the “mining” of new coins requiring huge reserves of energy and the associated carbon footprint of the entire system. Richard Partington and Martin Bellam Thanks for your response. The banking “liquidity crisis”, fueled by a rush of withdrawals from FTX, led to a halt to all cash outflows on Tuesday morning. But turning the crisis into a solvency risk would mean the company had invested customer deposits in illiquid assets, forcing it to choose between a hasty sale at reduced valuations or a complete halt to underwriting. In posts sent shortly before FTX was engulfed in crisis, its owner, Sam Bankman-Fried, insisted that was not the case. “FTX is fine. Assets are good. FTX has enough to cover all client holdings,” he said in since-deleted tweets. “We do not invest client assets (even in bonds).” Since then, Bankman-Fried has changed its messaging, telling investors the company needs $8 billion to meet withdrawal requests, according to multiple reports. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our site and Google’s Privacy Policy and Terms of Service apply.Sam Bankman-Fried. Photo: FTX/Reuters The sudden collapse in value was triggered by leaked documents which suggested that Alameda Research, a hedge fund closely linked to FTX through its joint owner, Bankman-Fried, was in fact insolvent. Alameda’s accounts were based on a token, FTT, that was issued by FTX and had no value other than that guaranteed by the exchange, according to the documents. This revelation turned into a crisis when Binance, the largest cryptocurrency exchange, announced that it would sell its own significant stake in FTT. The ensuing fire plunged the token’s value well below the $22 floor that FTX had pledged to support and caused the equivalent of a bank run on FTX itself as customers scrambled to withdraw their deposits faster than it could. to be processed by the exchange. The fight between the two exchanges briefly turned into an alliance as Binance agreed to make a non-binding offer to rescue FTX and merge with it. But on Wednesday night, the deal collapsed. “As a result of corporate due diligence, as well as recent news regarding the mismanagement of client funds and alleged investigations by US agencies, we have decided not to pursue the potential acquisition of FTX.com,” Binance said.
