Venture capitalists who invested $2 billion-plus in Sam “SBF” Bankman-Fried’s FTX crypto exchange worry that their investments will be wiped out in an unexpected planned emergency bailout by rival exchange Binance that stunned the crypto industry.
The price of Bitcoin dropped to a two-year low Wednesday, Nov. 11 at just more than $17,000.
Bankman-Fried, 30, is considered one of the most successful fundraisers, according to The Information. His 3-year-old FTX startup, valued at $1.2 billion in early 2020, subsequently raised almost $2 billion for its last $32 billion valuation. Investors included Tiger Global Management, Ontario Teachers’ Pension Plan, Insight Partners, Ribbit Capital, Sequoia and Paradigm.
The world’s No. 3 crypto exchange by trading volume, FTX acquired six organizations including some that were in trouble — most recently, Voyager on Sept. 26, 2022, for $1.3 billion, Crunchbase reported.
FTX’s troubles are spreading through the cryptoverse.
“FTX’s leader Sam Bankman-Fried was the white knight who has been saving companies throughout most of this crypto winter,” Edward Moya, senior market analyst at Oanda, told Yahoo Finance. “Seeing one of the major players wave the white flag is making a lot of people nervous that more pain could come.”
In the last 24 hours, the total market capitalization for all crypto assets fell more than 10 percent from $980 billion to $880 billion, according to Coinmarketcap and Yahoo Finance charts.
Cryptocurrencies that tanked include No. 2 crypto Ether, which saw a 17 percent price drop in 24 hours from $1,448 to $1,164. FTX’s native token FTT fell by close to 75 percent in a day from $17 to $3.15. Solana (SOL), which was heavily supported by Bankman-Fried, sold off 28 percent in a day from $28.19 to $20 and was trading at $16.94 as of this writing.
Four FTX backers told The Information that the future of their equity stakes and the impact of the Binance deal remains uncertain. Another investor said they were fielding texts from limited partners — institutional investors worried that the value of stakes would go to zero.
Since late September, SBF has been looking to raise another $1 billion from investors at a $32 billion valuation, according to a person familiar with the matter. As recently as late October, Bankman-Fried talked publicly about making big acquisitions.
Venture investors in the digital asset industry have already been hammered by this year’s stablecoin and crypto lender meltdowns and a collapse in token prices.
Binance CEO Changpeng “CZ” Zhao tweeted that the proposed deal was only for FTX’s non-U.S. operations and was subject to due diligence.