Cryptocurrency markets in turmoil over FTX failure

Nov 11 (Reuters) – Cryptocurrency exchange FTX filed for bankruptcy in the United States on Friday and Sam Bankman-Fried stepped down as CEO after a liquidity crisis that required intervention from regulators around the world.

FTX, its Alameda Research affiliated cryptocurrency trading fund, and about 130 other companies have initiated voluntary Chapter 11 bankruptcy proceedings in Delaware, FTX said.

MARKET REACTION:

Shares of cryptocurrencies and blockchain-related companies fell Friday after FTX, one of the largest cryptocurrency exchanges, said it would initiate bankruptcy proceedings in the United States, triggering a potential mass meltdown in the industry.

COMMENTS:

DENNIS DICK, MARKET STRUCTURE ANALYST AND TRIPLE D TRADING TRADER

“The filing for bankruptcy happened just before the opening, so it actually brought down the entire stock market as well.”

“There was a lot of bad news already. You would think these stocks would have dropped significantly on this news, but many have actually recovered the loss significantly. The decline has been bought.”

THOMAS HAYES, DIRECTOR MEMBER OF THE GREAT HILL CAPITAL LLC OF NY

“It’s selling the rumor. Now we have the news. What we feared is now done and I wouldn’t be surprised if cryptocurrencies are seen starting to bottom out in the next few days.”

“The shock was that this guy was the face of the cryptocurrency industry and it turned out that the emperor had no clothes. And I think the real risk of moving forward is losing faith in an asset class that doesn’t. is supported by nothing and that “It will be something that has to play”.

JAY HATFIELD, CEO OF INFRASTRUCTURE CAPITAL MANAGEMENT IN NEW YORK

“Bitcoin fell when bankruptcy was announced quite substantially and that tends to drag down most cryptocurrency-related stocks like MicroStrategy because they own Bitcoin.”

“Well, they’ve already taken a hit. And overall, we’re in an uptrend after the inflation report. All of these stocks are high, high-risk data, so if the market goes up that will drag them higher. “

JOSEPH EDWARDS, SECURITIZE CAPITAL INVESTMENT ADVISER

“The main danger here is that the US entity is involved – it essentially means that the contagion risk now jumps into areas that should have been demarcated, at which point it becomes much closer to an existential problem due to the regulatory implications.”

“The failure here was essentially a failure of industry structures rather than a failure of the asset class, but as US entities and authorities get involved, the difference between the two begins to blur.”

ERIC CHEN, CEO AND CO-FOUNDER OF INJECTIVE LABS

“Today’s events are likely to cause ripple effects across the regulatory environment, as SBF was a major donor in the election (the sixth largest donor ever), so politicians are likely to have a negative sense of cryptocurrency exchanges.” centralized that go on.

“Washington has lost one of the most important voices in the cryptocurrency space and I’m not sure exactly who bridges that gap in the short term. I suspect this volatility will be short lived as it is mainly driven by sudden liquidations.

“I think the events that have emerged in the past few days only add further fuel to the broader narrative of decentralization and how important it will be for users to have unrestricted access to their funds at all times. In the long run, I think cryptocurrency participants they will be even more wary of platforms or centralized exchanges, which will be a great advantage for decentralized finance as a whole. “

OMID MALEKAN, ADDITIONAL PROFESSOR AT THE COLUMBIA BUSINESS SCHOOL

“The ‘thing’ about this latest crisis seems to be that FTX has done things with client funds that an exchange shouldn’t have and now some amounts are missing. We need more details to know what the exact incorrectness was and how much it can be. recovered.

“The ‘how’ is even more difficult to answer because unlike an Earth, which was always questionable, or a Celsius, which like any lender could face a run, FTX was almost universally perceived as safe, particularly after playing white horse with other failed cryptocurrency players. The SBF CEO had taken a leadership role in things like regulations, and it seems almost pathological that someone is handling massive fraud while simultaneously working with Congress to clean up the industry. Ultimately, the lesson. here is that the cryptocurrency industry has to stop trusting personality cults, no matter how well-intentioned they may seem. “

RICHARD GARDNER, CHIEF EXECUTIVE OFFICER OF MODULUS GLOBAL, SOFTWARE PROVIDER FOR BIG-TICKET WALL STREET CUSTOMERS

“FTX is in this situation to begin with which is hardly a surprise. SBF’s freewheeling approach to industry consolidation was poorly conceived from the start. Even if it were able to successfully make acquisitions, we are at the beginning of the economic crisis. To find the best deals associated with the most desirable institutions, a waiting game was required. Aiming for the moon so fast was a surefire way to invite this kind of risk and, although not surprising, certainly it will not give retail investors a sense of calm. “

GREG KIDD, CO-FOUNDER OF VC FIRM HARD YAKA

“Sam and FTX were playing a brilliant long-term strategy game (chess). Unfortunately for them, CZ and Binance chose to play a short-term tactical game (checkers) that put FTX in the spotlight on liquidity concentrations in Alameda. that were vulnerable to the price shocks that CZ / Binance could trigger by offloading certain assets. When FTX overstepped the limit to try to help Alameda weather the storm, the trap was triggered bringing the entire SBF ecosystem to its knees. “

“CZ and Binance flexed their muscles last month by unlisting Coinbase and Circle’s USDC from their exchange, stifling liquidity from the world’s second most popular stablecoin in favor of their own stablecoin. Highlanders’ hardball tactics have again had success, strengthening Binance’s hand at the expense of # 2 and # 3 players in the industry.

“It’s a rough and stormy world that just got tougher. In the long run, CZ / Binance may have their own punishment on their lenient compliance checks that have benefited the likes of the Russian version of Silk Road and have been a channel. of laundering proceeds for North Korean hackers “.

JOHN GRIFFIN, CEO AND FOUNDER OF INTEGRA FEC, WHICH PROVIDES ADVICE TO GOVERNMENT AGENCIES AND LAW FIRM THAT INVESTIGATES FINANCIAL FRAUD, AND PROFESSOR OF FINANCE AT THE UNIVERSITY OF TEXAS

“The next question is the extent of the contagion effect this will have on other exchanges and where the next potential losses can occur.

“There is usually a lot of cross-collateralization. So to what extent when you have a major entity like this going down, all the assets related to that FTX exchange go down. It’s kind of a big financial crisis. You have people who have theirs. custodians or FTX-related assets could cause someone else to downgrade.

“You have a lack of confidence in the cryptocurrency area, so you don’t know if someone else will go bankrupt and you may not get your cryptocurrencies (from other players). Investors could withdraw their cryptocurrencies from exchanges and put them on the blockchain. this would eliminate a lot of cross-guarantees, a lot of leverage in the system, put downward pressure on cryptocurrency prices and potentially cause other players to go bankrupt. So it could be like a financial crisis in the cryptocurrency space.

“It appears that Alameda is running out of obligations in the amount of many billions of dollars. That means they owe someone billions of dollars. So those parties, because they have suffered losses, could have them wiped out other entities and those entities could wipe out others. entity. You have an incentive to break virtually all counterparties, you want to eliminate counterparty risk, as if you want to get out of any derivatives deal you have made. You pull everything into cash. So you could sell bitcoin or other cryptocurrencies to raise money, which puts downward pressure on cryptocurrencies.

Compiled by the Global Finance & Markets Breaking News team; Editing by Richard Chang

Our Standards: Thomson Reuters Trust Principles.

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