Crypto giant’s bankruptcy puts industry in Washington’s crosshairs
The bankruptcy filing was poised to deliver another blow to the crypto market meltdown and further destroy the industry’s standing in Washington, where FTX and political megadonor Bankman-Fried have in recent months led a campaign to influence emerging laws and regulations. As regulators around the world surround FTX and Bankman-Fried, the controversy threatened to derail bipartisan crypto legislation championed by the company. FTX-linked crypto startups have also suffered disruptions to their operations.
The bankruptcy filing says Bahamas-based FTX and more than 130 affiliates and subsidiaries, including Bankman-Fried’s investment firm Alameda Research, have between $10 billion and $50 billion in liabilities compared to $10 billion to $50 billion in dollars of assets. The company disclosed more than 100,000 creditors, which likely include customers, and said funds will be available for them.
Bankman-Fried “will help with an orderly transition,” according to FTX. The 30-year-old former billionaire saw his fortune wiped out this week.
The U.S. operation of FTX, which Bankman-Fried said on Thursday was “not financially affected by this shitshow,” is among the entities seeking bankruptcy protection. A source with knowledge of the situation said “there aren’t many people left” in the company’s US operations.
Top U.S. exchange FTX executives — including former acting Commodity Futures Trading Commission chairman Mark Wetjen and Ryne Miller, a former adviser to SEC Chairman Gary Gensler when he headed the CFTC — had removed FTX from their Twitter profiles on Thursday afternoon. Zane Tackett, who led institutional sales at FTX, said in a Twitter post on Thursday evening that his work accounts had been deactivated without warning. Wetjen and Miller did not respond to requests for comment.
“The FTX Group has valuable assets that can only be administered effectively through an organized, joint process,” said Ray, who was also involved in the Enron liquidation. “I want to assure every employee, customer, creditor, contractor, shareholder, investor, government authority and other stakeholder that we will conduct this effort diligently, thoroughly and transparently.”
FTX did not respond to a request for comment.
The company filed for Chapter 11 protection in federal court in Delaware just hours after the Bahamas Securities Commission, where FTX is located, announced it was freezing the company’s assets.
“I’m so sorry, again, that we ended up here,” Bankman-Fried said in a Twitter post after filing the bankruptcy petition. “Hopefully things can find a way to recover. Hopefully this will bring them some transparency, trust and governance. »
In Washington, the policies advocated by Bankman-Fried as part of a big-ticket influence campaign are under enormous pressure following the collapse of FTX. This includes a Senate Speaker-sponsored Crypto Regulation Bill on Agriculture Debbie Stabenow (D-Mich.) and Sen. John Boozman (R-Ark.), the top Republican on the panel.
Boozman on Thursday evening said officials were conducting a “top-down” review of The law project in light of the FTX crisis. Stabenow said the committee “remains committed to advancing digital product consumer protection law to provide necessary safeguards to the digital product market.” The bill, which has been positioned for a committee vote in the coming weeks, would give the CFTC oversight of crypto trading.
Lobbyists – including those representing crypto firms – said they did not expect the bill to achieve much success this year, with other crypto firms on the verge of collapse .
“This scandal is going to require a complete overhaul of how Congress is going to approach — how everyone should approach — this industry,” said Jim Manley, a Democratic strategist who served as the late Majority Leader’s aide to the Senate, Harry Reid (D- Nev.). Manley does not represent crypto clients.
FTX is the latest – and largest – in a long line of crypto heavyweights that have been beaten down by volatile markets and dodgy internal controls over the past year. David Portilla, a partner at Cravath, Swaine & Moore, said federal regulators must use their existing powers to step in now because the legislative process will be too slow to deal with current risks.
“We can’t wait 24 months for legislation – and the implementation of that legislation – to protect consumers,” he said. “Remedial regulatory action should be seriously considered.”
A key entity whose assets are not included in the company’s sprawling bankruptcy filing is its US derivatives trading platform, which reverted to the LedgerX name it carried before its acquisition by FTX last fall. .
The CFTC, where LedgerX holds a license, is monitoring the chaos surrounding FTX amid concerns that the Bahamas-based exchange’s troubles could affect regulated markets in the United States.
LedgerX on Friday withdrew a proposal it had filed with the CFTC to allow retail investors to use borrowed money to trade crypto around the clock through its derivatives platform, according to a source. ‘agency.
The collapse of FTX threatened to bring down other digital asset startups linked to the exchange and Bankman-Fried.
BlockFi, an FTX crypto lending firm rescued from similar market contagion this summer, announced it was suspending withdrawals late Thursday evening.
Galaxy Digital, an investment firm run by former Fortress Investment Group executive Mike Novogratz, revealed on Wednesday that it has $77 million locked up on FTX. Genesis – a crypto lending company owned by Digital Currency Group – said on Thursday that FTX had locked it in at around $175 million.
Federal officials have warned for months that crypto’s highly interconnected market structure could pose risks to the financial system if it continues to grow without regulation.
“FTX’s bankruptcy underscores crypto’s structural challenges with transparency and poor risk management that have, time and time again, led to losses for investors,” said Monsur Hussain, senior director of Fitch Ratings, in a statement. communicated.
Other crypto industry heavyweights rushed to part ways with FTX and Bankman-Fried via blog posts, press releases and lengthy Twitter threads. The market capitalization of all major cryptocurrencies has fallen by 20% since the start of the week.
“We also feel burned by this,” Alesia Haas, CFO of US crypto exchange Coinbase, said in an interview. “We would never have expected this.”
Haas said this could present Coinbase with an opportunity to capture a bigger share of the crypto market. Coinbase disagreed with the Securities and Exchange Commission on how it should be regulated, but the company is now trying to promote its US headquarters as a source of strength.
Gensler, who has urged exchanges like Coinbase to register with the SEC, told CNBC on Thursday that “this is an area that is clearly non-compliant.” He argued that many crypto tokens are considered securities under the jurisdiction of his agency.
Gensler said the best way to protect customers is to “work with these crypto exchanges, crypto lending platforms and register them properly” with the SEC.
The SEC did not respond to requests for comment.
Victoria Guida contributed reporting.