In a recent interview, Sam Bankman-Fried, the founder of the popular exchange FTX, warned that some crypto exchanges are “secretly insolvent” and may soon fail. Bankman-Fried’s FTX and Alameda Research have already helped Blockfi and Voyager Digital as the 30-year-old billionaire says sometimes you have to do “what it takes to sort of stabilize things and protect customers.”
Bankman-Fried’s FTX and Alameda Research Provide Credit Lines to Specific Crypto Firms
This month’s Terra LUNA, UST and bear markets have had a severe impact on the crypto economy. Terra’s downfall arguably started a significant domino effect that saw numerous exposed firms suffer sizable losses.
The crypto community is facing many problems due to massive leverage. Most of the contagion effect that affects the sector comes from lenders and borrowers. Over two weeks ago, the crypto lender Celsius paused withdrawals, and ‘people familiar with the matter’ have said Celsius is dealing with notable financial hardships.
Three Arrows Capital (3AC), which is a crypto hedge funds based in Singapore, was allegedly liquidated and lost its capital. purchased $200 million of locked luna classic (LUNC) that’s now worth $700. It seems that the issues derived from Terra and Celsius as well as 3AC are getting exposure to other crypto companies.
Bankman-Fried’s quantitative cryptocurrency trading firm, Alameda Research, helped Voyager Digital cope with 3AC exposure by providing the firm with a $500 million line of credit. On June 21, his crypto exchange FTX provided Blockfi with a $250m line of credit.
Bankman-Fried: ‘Some Companies Are Too Far Gone’ or ‘There’s Not Much of a Business Left to Be Saved’
Furthermore, Bankman-Fried spoke about 3AC on June 19, and explained on Twitter that 3AC’s financial hardships “couldn’t have happened with an onchain protocol that was transparent.” On June 28, 2022, Forbes author Steven Ehrlich did an interview with Bankman-Fried, and the FTX CEO was very candid about crypto exchanges that are “secretly insolvent.”
Bankman-Fried also spoke about the recent investments in Blockfi and Voyager, as the FTX CEO explained there’s a chance he may not get a return on his investment. “You know, we’re willing to do a somewhat bad deal here, if that’s what it takes to sort of stabilize things and protect customers,” Bankman-Fried told the Forbes contributor. According to FTX’s CEO, more platforms would be freed from financial obligations in the future.
“There are some third-tier exchanges that are already secretly insolvent,” Bankman-Fried detailed. “There are companies that are basically too far gone and it’s not practical to backstop them for reasons like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved,” he added.
Bankman Fried announced that FTX would spend billions in mergers and acquisitions on May 27, 2022. Forbes has learned from Bankman Fried, that FTX was financially sound and profitable over the last 10 quarters.
Ehrlich told him that FTX was interested in over-leveraged cryptocurrency miners. Bitcoin.com News has also recently reported that estimates say there’s currently $4 billion in distressed loans backed by crypto mining rigs. Ehrlich was also interviewed by Bankman-Fried about tether (USDT), the biggest stablecoin according to market value. According to Ehrlich’s interview with Bankman-Fried, the FTX CEO is not concerned about tether.
“I think that the really bearish views on Tether are wrong… I don’t think there is any evidence to support them,” Bankman-Fried told the reporter.
What do you think about Bankman-Fried’s recent interview regarding the distressed crypto companies? Please comment below on your views.
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