The CEO of crypto exchange FTX Sam Bankman-Fried thinks the worst is behind us. He is referring to the series of crypto companies that have run into trouble in recent months. FTX still has enough liquidity to support these companies when needed: 'We have a few billion on hand".
An example of such a loan from Bankman-Fried (on crypto Twitter: SBF) came from trading house Alameda, also owned by SBF. That company recently provided a credit line for lending platform BlockFi. And it recently lent 200 million to Voyager, yet another crypto lending platform that had to halt withdrawals. Their issue with Voyager is they had lent out a large sum without collateral to formerly respected crypto hedge fund 3AC. That fund, which is responsible for a big part of the current mess, is now bankrupt.
Bankman-Fried, who founded FTX only three years ago, says in the interview with Reuters he also tapped into his own capital: "FTX has shareholders and we have a duty to do reasonable things by them and I certainly feel more comfortable incinerating my own money".
Like J.P. Morgan last century
According to SBF, Alameda has been approached by more crypto companies in recent times, although these are not in dire situations. All this has made analysts compare SBF's role to that of traditional banker J.P. Morgan at the beginning of the twentieth century. It was an era without a central bank in the United States. When a few banks collapsed in 1907 and a domino effect threatened, Morgan was the lender of last resort who kept things afloat.
Incidentally, some people question the role of SBF in current market conditions. There are even rumors that Alameda caused the fall of companies like Celsius. After all, Alameda is a trading house and can also make money from price drops. Ah well, at a time like this there are so many rumors going around...
Skeletons in the closet?
Speaking of Celsius, customers are still unable to perform withdrawals from that loan platform. A lawsuit filed by an ex-subcontractor shows that the company handled the assets of their account holders in an irresponsible manner. The company presented itself as a bank while failing to hedge risks and flouting even basic accountancy rules.
Because the embattled Centralized Finance branch of crypto is not transparent and on-chain, unlike Decentralized Finance, which has continued to run just fine - it is not clear if more skeletons will fall out of the closet. Celsius itself is by no means out of the woods either. Reportedly - yet another rumor - SBF kindly declined helping this fund out of its predicament when he saw the size of the hole in their balance sheet. If Celsius would be declared bankrupt and there were to come a firesale of the crypto they hold, it could lead to new price drops in the crypto market. But they are also working on an alternative rescue plan, which would not lead to a forced sell-off.
Is the bottom in?
The prices of Bitcoin and altcoins rebounded yesterday. But to be able to say that the crypto markets have the bottom behind them, two conditions must be met:
- The interconnectedness of opaque loans, or "contagion," between crypto companies and hedge funds must be sorted out. According to SBF, it looks like we're close.
- The macroeconomic situation must not seriously deteriorate. If the U.S. Central Bank continues to stubbornly raise interest rates while the economy slides into recession, stock prices may fall even further - and crypto prices have been correlated with this lately.