From $32 billion to zero in seven weeks

On 21 September, CNBC reported that Sam Bankman-Fried’s crypto conglomerate FTX was in talks with investors to raise $1 billion at a valuation of $32 billion.

Fast forward seven weeks, and FTX is on the brink of bankruptcy, with Sequoia Capital writing down the full value of its holdings in FTX to zero.

FTX is a Bahamian cryptocurrency exchange founded by Sam Bankman-Fried and Gary Wang in May 2019.

The company focused on rapid growth and acquired Blockfolio, a cryptocurrency portfolio tracking app, for $150 million.

FTX raised billions in different funding rounds over the last two years to fund this growth.

In July 2021, FTX raised $900 million at an $18 billion valuation from over 60 investors, including Softbank and Sequoia Capital.

It was followed by a $400 million Series C funding round in January 2022 at a $32 billion valuation.

On 2 November, CoinDesk reported that a big portion of Alameda Research’s assets was FTT, the exchange token issued by FTX.

A week later, Binance CEO Changpeng Zhao said his firm intended to entirely sell its holdings of FTT, which sent the FTX token plummeting.

He also announced that Binance had entered into a non-binding agreement to purchase FTX due to a liquidity crisis at FTX.

The deal did not go through. Binance cited FTX’s mishandling of customer funds and pending investigations of FTX for not pursuing the deal.

Yesterday, Bankman-Fried told FTX investors Wednesday that without a cash injection, the company would need to file for bankruptcy.

FTX investors include big names in tech venture capital, including Sequoia Capital, BlackRock, Tiger Global Management, and SoftBank.

Bankman-Fried said his crypto exchange faced a shortfall of up to $8 billion and needed $4 billion to remain solvent.

Bloomberg reported that Sequoia wrote down the full value of its holdings in FTX.com and FTX.us, an indication that the firm sees no clear path to recouping its investment.

“We are in the business of taking risk,” Sequoia wrote in a message to investors. “Some investments will surprise to the upside, and some will surprise to the downside.”

A smaller venture fund, Multicoin Capital, told investors Wednesday that about 10% of its assets under management were affected.

“Unfortunately, we were not able to withdraw all of the Fund’s assets on FTX,” Multicoin wrote in a letter reviewed by Bloomberg.

FTX’s troubles destroyed tremendous value and underscores the uncertainty hanging over FTX, its clients, and cryptocurrency markets.

It is also a stunning turn for Sam Bankman-Fried – the crypto industry’s onetime wunderkind who was worth $26 billion not too long ago.

To add to FTX and Bankman-Fried’s woes, the Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating whether the firm properly handled customer funds.

They are also looking into its relationship with other parts of Bankman-Fried’s crypto empire, including his trading house Alameda Research.