The collapse of FTX Ltd. is sending shockwaves through the crypto industry, as the exchange scrambles to find a financial lifeline amid reports that it funneled customer assets worth billions of dollars into risky bets through an affiliated trading firm.
Investments in FTX made by Canadian organizations and businesses, such as a US$95-million stake held by the Ontario Teachers’ Pension Plan, are at risk of vanishing after the platform halted withdrawals of customer funds this week, citing a “liquidity crunch.”
The prices of multiple cryptocurrencies, including bitcoin BTX22 and ether, fell to new lows this week. And companies in Canada are receiving warnings from provincial and territorial regulators about exposure to FTX and its own cryptocurrency, FTT, asking them to alert their clients about the rapidly worsening crisis in the sector.
“It’s like there’s a new, scarier update every hour,” said Katrina Propoky, chief legal officer at Toronto-based Coinsquare Ltd., which last month became the first crypto dealer and marketplace to be a registered as a member of the Investment Industry Regulatory Organization of Canada.
“What we’re seeing is one of the biggest global crypto platforms basically implode right in front of us, feeding into the concerns that people have about this sector and eroding the trust that many have worked really hard to build over a lot of years.”
Bahamas-based FTX is the second-largest crypto exchange in the world. On Tuesday, it attempted to sell itself to rival Binance Holdings Ltd., after FTX’s chief executive officer Sam Bankman-Fried froze customer withdrawals.
But Binance walked away from the rescue takeover, and on Thursday issued a statement that alluded to discrepancies in FTX’s books, and expressed concerns about it mishandling customer funds: “In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help. Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.”
FTX lent about US$10-billion in holdings to Alameda Research, another crypto trading firm owned by Mr. Bankman-Fried, The Wall Street Journal and CoinDesk first reported.
Those loans were using money from the US$16-billion that customers had deposited into FTX’s platform for trading purposes, meaning FTX had been using a majority of its customers’ funds toward bets being made by its sister company. (Market brokers and exchanges typically keep customer funds separated from company assets, and not doing so can lead to enforcement action from regulators.)
Later on Thursday, Mr. Bankman-Fried tweeted that he will be winding down Alameda Research altogether. He also said he had engaged with a “number of players” to raise capital for FTX’s international business and those discussions are at various stages.
A spokesperson for FTX declined to comment on Thursday.
Reverberations were felt across the global crypto industry. In Japan, for example, its financial services agency announced a complete suspension of FTX’s local operations.
Toronto-based Liquid Meta Capital Holdings Ltd., another firm in the crypto sector, said it initiated withdrawal requests from FTX, but they remain unprocessed. The company said it had nearly $7.5-million in cash, stablecoins and other digital assets held by FTX, against which it holds $3.2-million in borrowed stablecoins and digital assets.
Vancouver-based WonderFi Technologies Inc., which runs Toronto-based crypto platforms Bitbuy Technologies Inc. and Coinberry Ltd., said it participated in a funding round for FTX last year, investing 1 per cent of its reported assets.
The situation at FTX also calls into question its plans to officially launch in Canada by acquiring Bitvo Inc., a Calgary-based crypto exchange. That deal, for which neither FTX nor Bitvo would reveal the exact terms or valuation, was expected to close in the third quarter this year.
Reached by phone Tuesday, Bitvo chief executive Pamela Draper declined to comment about the FTX situation or how it would affect her deal with that company. On Thursday, calls and e-mails to Bitvo went unanswered.
Ontario Teachers’ Pension Plan, which previously would not disclose its stake in FTX, said in a statement on Thursday that “in October, 2021, Ontario Teachers’ invested a total of US$75-million in both FTX International and its U.S. entity (FTX.US). In January, 2022, we made a follow-on investment of US$20-million in FTX.US.”
Teachers said the FTX investments represent less than 0.05 per cent of its total net assets.
“These investments were made through our Teachers’ Venture Growth (TVG) platform, alongside a number of global investors,” the statement said. “Naturally, not all of the investments in this early-stage asset class perform to expectations.”
The TVG group’s description of the fund, however, is different on its website, which states, “we invest directly in innovative, late-stage companies (Series B onward) that are using technology to shape a better future.”