- FTX, through Alameda, provided BlockFi and Voyager Digital with $750 million worth of credit lines after Three Arrows Capital defaulted in payments.
- Bankman-Fried names one asset that will survive the crypto winter.
According to FTX CEO and founder, Sam Bankman-Fried, some small crypto exchanges are already insolvent. He also claims many other crypto exchanges will soon fail. Bankman-Fried made his opinions known during a recent interview with Forbes. The FTX CEO explained that many of these crypto firms were investing recklessly during the crypto bull run of the past two years.
Hence, the current price crash has caused these firms to lose nearly all their investments. Bankman-Fried added that these crypto firms are insolvent because they were offering double-digit yields during the crypto bull season. Thus, they couldn’t sustain their yield offerings when prices started crashing. The FTX CEO predicts that many other small crypto exchanges will fail soon since they were also offering unsustainable yields.
Bankman-Fried added, “some firms are far too gone, and there’s no way to backstop them.” The FTX CEO’s comments came after offering $750m in credit lines to BlockFi and Voyager Digital. The two digital assets platform became distressed after Three Arrows Capital failed to repay its loans. However, it is unclear why Bankman-Fried didn’t extend similar credit lines to Crypto lender, Celsius.
Maybe Celsius is one of those firms that Bankman-Fried classified as too far gone and impracticable to backstop. Popular trading platform, Three Arrows Capital, might soon file for bankruptcy following the failure of its recent high-risk trades.
There are three causes of the current insolvency storm blowing against crypto firms. The first is the uncertainty regarding inflation and interest rates. The others were the Terra network crash last month and the de-pegging of Lido staked Ethereum.
In his opinion, Bankman-Fried admits that his company may not earn returns from its recent bailouts as the market downturn worsens by the day. However, he said the consolation is that the bailouts helped with maintaining stability and protecting customers.
It is worth noting that Bankman-Fried’s cash injections aren’t altruistic gestures. Industry analysts consider him a smart capitalist in the current crypto market. He is fully aware that a healthy rebound and growth of the crypto market also determines his fortune.
Hence, there are unconfirmed reports that FTX is preparing to convert its credit lines in Voyager and BlockFi to equity stakes. FTX might buy other smaller players too. Most of them are on the path to insolvency anyways. In his interview with Forbes, Bankman-Fried reiterated that FTX is profitable compared to its competitors like Coinbase, which have declared huge losses this year.
Tether fears are baseless – Bankman-Fried
Bankman-Fried also claimed that the tether stablecoin (USDT) is an asset that would survive the current crypto winter. Despite remaining largely stable in the last couple of months, many market participants are uncertain that Tether has enough reserve for USDT to maintain its peg.
However, the FTX CEO said those biased USDT views are wrong since there is no proof. Tether CTO, Paolo Ardoino, has publicly reassured investors that USDT has enough reserves to maintain its peg regardless of market conditions. However, there is still more misery awaiting the wider crypto market. There is still no solution to the cause of the current crypto market downturn.