FTX struggles for funding after Bankman-Fried Finance deal collapses

Hong Kong/Singapore/New York, Nov. 10 (Reuters) – FTX Chief Executive Sam Bankman-Fried on Thursday launched an urgent drive to raise funds to save his company, as the crypto exchange is said to be closing an $8 billion hole in its funding. According to the tweet and a memo to employees.

Bankman-Fried said he was in talks with “several players” in the crypto industry, including Justin Sun, the founder of crypto token Tron, after a potential rescue deal with larger rival Finans fell apart. But he added in the memo that he “doesn’t want to imply anything about the odds of success.”

He also said his company, Alameda Research, which sources said was partly behind FTX’s problems, would cease trading.

The struggle marks a stunning fall for the 30-year-old crypto executive, who in a matter of days went from being a career savior to someone in need of saving.

Problems at FTX, one of the world’s largest crypto exchanges, have fueled a broader crisis of confidence in cryptocurrencies, with bitcoin plunging below $16,000 overnight for the first time in late 2020.

However, a rally in the broader market also lifted cryptocurrencies in morning trade after US inflation data improved better than expected. FTX’s native token, FTT , is down more than 90% this week and is trying to hold steady at around $3.50. Bitcoin rose 11% to trade at $17,428.

Son, the founder of cryptocurrency network Tron, said in a tweet on Thursday that “we are bringing a solution together with #FTX to start the path forward,” without giving further details. Sun did not respond to a request for comment.

An FTX spokesman declined to provide further details on the talks.

Fundraising

The seeds for FTX’s downfall were sown months earlier, with mistakes made by Bankman-Fried after he stepped in to rescue other crypto firms, sources said.

Users rushed to withdraw $6 billion in crypto tokens from FTX within days, after a news report earlier this month raised questions about Alameda’s balance sheet and Binance CEO Changpeng “CZ” Zhao tweeted that his company would sell its entire stake in FTX’s token, FTT. The exit caused a liquidity crunch at FTX.

In a memo seen by Reuters, Bankman-Fried said next week it would “host a rally” to do the right thing by customers and “potential new investors.”

Another exchange, OKX, said it was approached earlier in the week by Bankman-Fried, who described $7 billion in loans.

“It was too much for us,” OKX’s director of financial markets Lenix Loi told Reuters.

Bloomberg reports that Bankman-Fried told investors that FTX faces up to $8 billion in shortfalls and that the company will have to file for bankruptcy if it doesn’t get more financing.

Risks of infection

Some investors were writing funds plowed into FTX. Venture capital fund Sequoia Capital disclosed $150 million to zero on Wednesday. Canada’s Ontario Teachers Pension Plan, Tiger Global and Japan’s SoftBank are also FTX investors.

One focus among investors is the unknown scale of customer losses and the perceived impact of the recent and potentially massive downturn in a sector that has become a minefield for investors.

Crypto asset manager Coinshares said it has $30.3 million in total exposure to FTX.

Broker Robinhood (HOOD.O) He said he had no direct exposure to FTX, but Bankman-Fried owns a stake in the company and its shares fell sharply on Tuesday and Wednesday.

Danny Chong, CEO of decentralized finance firm Tranchess, said “a great exchange has failed — it’s on a different level,” with more widespread changes than the failures of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital this year.

The US securities regulator is investigating FTX.com’s handling of customer funds and crypto-lending operations, according to a source familiar with the investigation.

A message on the FTX website said it was no longer accepting returns or new users. However, Bankman-Fried said the exchange’s U.S. operations, FTX.US, were not financially affected.

Bankman-Fried, who is originally from California but lives in the Bahamas, where FTX is located, said the company will take a “tough look” at management. “I wouldn’t be around if I didn’t want to,” he wrote in a tweet.

Angus Berwick reports in New York; Georgina Lee in Hong Kong and Tom Westbrook in Singapore; Elizabeth Howcroft in London Writing by Paridosh Bansal Editing by Megan Davies, Anna Driver and Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.

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