Crypto exchange FTX filed for U.S. bankruptcy on Friday and Sam Bankman-Fried stepped down as CEO, after a liquidity crisis that has prompted intervention from regulators around the world.
FTX, its affiliated crypto trading fund Alameda Research and about 130 other companies have commenced voluntary Chapter 11 bankruptcy proceedings in Delaware, FTX said.
Shares of cryptocurrency and blockchain-related firms dropped on Friday after FTX, one of the biggest crypto exchanges, said it would initiate bankruptcy proceedings in the United States, triggering a potentially massive meltdown in the industry.
DENNIS DICK, MARKET STRUCTURE ANALYST AND TRADER AT TRIPLE D TRADING
"The bankruptcy filing happened right before the open so that actually knocked the entire stock market down too."
"There was a lot of bad news already priced in. You would think these stocks would be down significantly on this news but many have actually come off the loss significantly. The dip got bought."
THOMAS HAYES, MANAGING MEMBER AT GREAT HILL CAPITAL LLC IN NY
"It is sell the rumor. Now we have the news. What was feared is now done and I wouldn't be surprised if in the coming days you see crypto start to find the bottom."
"The shock was that this guy was the face of the crypto industry and it turned out that the emperor had no clothes. And I think that the real risk moving forward is confidence is lost in an asset class that's not backed by anything and that'll be something that has to play out."
JAY HATFIELD, CEO OF INFRASTRUCTURE CAPITAL MANAGEMENT IN NEW YORK
"Bitcoin fell when the bankruptcy was announced pretty substantially and that tends to drag down most of the crypto related stocks like MicroStrategy because they own Bitcoin."
"Well, they've already taken a pretty big hit. And overall, we're in an upward trend after the inflation report. All these securities are high data, high risk so if the market goes up that'll drag them higher."
JOSEPH EDWARDS, INVESTMENT ADVISER AT SECURITIZE CAPITAL
"The main danger here is that the U.S. entity is involved - it essentially means contagion risk now jumps into areas that were supposed to be ringfenced, at which point it becomes much closer to an existential problem because of the regulatory implications."
"The failure here has essentially been a failure of industry structures rather than a failure of the asset class, but when U.S. entities and authorities start getting involved, the difference between the two begins to blur."
ERIC CHEN, CEO AND CO-FOUNDER OF INJECTIVE LABS
"The events today will likely cause ripple effects across the regulatory environment given that SBF was a major donor to the elections (sixth largest donor overall) so the politicians will likely have a negative sense of centralized crypto exchanges moving forward.
"Washington has lost one of the most important voices in crypto and I am not sure who exactly fills that gap in the short term. I suspect this volatility will be shortlived since it is mainly being driven by sudden liquidations.
"I think the events that have transpired over the past few days only add further fuel to the broader decentralization narrative and how important it will be for users to have unrestricted access to their funds at all times. In the long run, I think participants in crypto will be even more wary of centralized platforms or exchanges which will be a major boon for decentralized finance as a whole."
OMID MALEKAN, ADJUNCT PROFESSOR AT COLUMBIA BUSINESS SCHOOL
"The 'what' of this latest crisis seems to be that FTX did things with client funds that an exchange should not have and now some amounts are missing. We need more details to know what the exact impropriety was and how much can be recovered.
"The 'how' is even tougher to answer because unlike a Terra, which was always questionable, or a Celsius, which like any lender could face a run, FTX was almost universally perceived to be safe, particularly after playing white knight to other failed crypto players. CEO SBF had taken a leadership role in things like regulations, and it almost seems pathological to have someone run a massive fraud while simultaneously working with Congress to clean up the industry. Ultimately, the lesson here is that the crypto industry needs to stop trusting cults of personality, no matter how well-intentioned they might seem."
RICHARD GARDNER, CHIEF EXECUTIVE OFFICER OF MODULUS GLOBAL, A SOFTWARE PROVIDER TO BIG-TICKET WALL STREET CLIENTS
"FTX finds itself in this situation to begin with certainly is of no surprise. SBF's freewheeling approach to industry consolidation was ill-conceived from the beginning. Even if he were in a position to successfully make the acquisitions, we are in the beginning of the economic crunch. To find the best deals associated with the most desirable institutions, a waiting game was in order. Shooting for the moon so fast was a surefire way to invite this kind of risk, and, while it isn't a surprise, it is most certainly not going to give retail investors any sense of calm."
GREG KIDD, CO-FOUNDER OF VC FIRM HARD YAKA
"Sam and FTX were playing a brilliant long-term strategic game (chess). Unfortunately for them, CZ and Binance chose to play a short-term tactical game (checkers) that put FTX under the spotlight on liquidity concentrations at Alameda that were vulnerable to price shocks that CZ/Binance could trigger by dumping particular assets. When FTX crossed the line to try to help Alameda weather the storm, the trap was sprung bringing the whole SBF ecosystem to its knees."
"CZ and Binance flexed their muscles last month by delisting Coinbase and Circle's USDC from their exchange, squelching liquidity from the world's second most popular stablecoin in favor of their own stablecoin. Highlander hardball tactics again carried the day, strengthening Binance's hand at the expense of the #2 and #3 players in the industry.
"It's a rough and tumble world that just got rougher. Longer term, CZ/Binance may have their own comeuppance over their lenient compliance controls that have well benefited the likes of the Russian version of Silk Road and been a conduit of laundering proceeds for North Korean hackers."
JOHN GRIFFIN, CEO AND FOUNDER OF INTEGRA FEC, WHICH PROVIDES CONSULTING TO GOVERNMENT AGENCIES AND LAW FIRMS INVESTIGATING FINANCIAL FRAUDS, AND FINANCE PROFESSOR AT UNIVERSITY OF TEXAS
"The next question is how wide of a contagion effect this is going to have on other exchanges and where the next potential losses can occur.
"Usually there is a lot of cross collateralization. So to what extent when you have a major entity like this that goes down, all the assets tied to that FTX exchange go down. It's kind of the great financial crisis. You have people that have their custodians or assets related to FTX. It could cause somebody else to go down.
"You have a lack of trust in the crypto area, so you don't know if someone else will be bankrupt and you might not get your crypto out (from other players). Investors could pull their crypto off the exchanges and put it on the blockchain. Then this would remove a lot of cross collateralization, a lot of leverage in the system, put downward pressure on crypto prices and potentially cause other players to fail. So this could be like a financial crisis in the crypto space.
"It seems that Alameda is short on obligations to the tune of many billions dollars. That means they owe someone billions of dollars. So those parties, as they experienced losses, that could cause them to wipe out other entities and those entities could wipe out other entities. You have an incentive to basically break all counterparties, you want to eliminate the counterparty risk, like you want to get out of any derivative trades you've made. You pull everything into hard cash. So you may be selling bitcoin or other crypto to raise cash. That puts downward pressure on crypto.
(Compiled by the Global Finance & Markets Breaking News team; Editing by Richard Chang)