FTX scrambles for rescue funds

FTX is scrambling to raise about $9.4bn from investors and rivals, Reuters has reported citing an unnamed source, as its CEO urgently seeks to save the cryptocurrency exchange after a rescue deal by larger rival Binance collapsed.

Over the past few hours, chief executive Sam Bankman-Fried has discussed raising $1bn each from Justin Sun, the founder of crypto token Tron, rival exchange OKX and stablecoin platform Tether, according to the source who has direct knowledge of the matter, as FTX been buffeted by a rush of customer withdrawals.

He is seeking the remainder from other funds, including current investors in FTX, such as venture capital fund Sequoia Capital, the source added.

It was not clear, however, whether Bankman-Fried will be able to raise the funds he needs and if these investors would participate.

Tether’s chief technology officer, Paolo Ardoino, tweeted that the company had “no plans to invest in or lend assets to FTX”.

One of the 30 to 40 investors in FTX’s data room is Daniel Loeb’s Third Point, but according to a source familiar with the matter, the hedge fund is not discussing giving FTX more money.

FTX and Sequoia did not immediately respond to requests for comment on the latest news of the talks. OKX also was not immediately available for comment on the latest news of talks.

Earlier on Thursday, however, OKX told Reuters it had been approached this week by Bankman-Fried, who described liabilities of $7bn that needed covering fast.

“That was too much for us,” Lennix Lai, director of financial markets at OKX, told Reuters.

In a tweet, FTX said it had reached a deal with Tron to establish a special facility that would allow clients to swap some crypto assets from FTX to external wallets. It said initially that $13m of assets will be deployed to facilitate the swaps.

Earlier in the day, Bankman-Fried said in tweets and a memo to employees seen by Reuters that he was in talks with “a number of players” in the crypto sector, including Sun, after a potential rescue deal with larger rival Binance fell apart.

But he added that he did not want to “imply anything about the odds of success”.

Bankman-Fried also said his trading firm Alameda Research, which sources have said was partly behind FTX’s problems, was winding down trading.

Boost from inflation data

FTX’s predicament marks a stunning downfall for the 30-year-old crypto executive who was once worth nearly $17bn but in a matter of days transformed from his status of industry saviour to the one who needed saving.

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

However, a surge in the broader market after better-than-expected US inflation data also buoyed cryptocurrencies. FTX’s native token, FTT, was up nearly 140 percent at $3.61 in midday trading but down more than 80 percent for the week. Bitcoin was trading at $17,563, up more than 10.5 percent.

Trading volumes in bitcoin futures and exchange-traded funds have exploded amid the turmoil.

Bankman-Fried said FTX US, the US operations of the exchange, had not been financially impacted.

Mistakes catching up

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

The sources told Reuters that FTX transferred at least $4bn to Alameda, including some customer deposits, to prop up the trading firm after a series of losses.

Bankman-Fried told investors that Alameda owes FTX about $10bn, the Wall Street Journal reported. FTX had lent more than half of its customer funds to Alameda, the newspaper said.

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

Reuters could not learn what specific activities were the focus of the probe.

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

Contagion risks

Some investors were writing off funds ploughed into FTX. Sequoia wrote down a $150m exposure 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 on the unknown size of customer losses and the hit to sentiment from the latest and possibly largest collapse in an industry that has turned into a minefield for investors.

Crypto asset manager CoinShares said it has $30.3m total exposure to FTX.

Broker-dealer Robinhood said it has no direct exposure to FTX, but Bankman-Fried holds a stake in the firm, and its shares fell heavily on Tuesday and Wednesday.

Bankman-Fried, who is from California but lives in the Bahamas where FTX is based, said the company would take a “hard look” at governance and that he “will not be around if I’m not wanted”.

He also repeatedly apologised. “I am sorry. That’s the biggest thing,” he tweeted.