The worst is yet to come: FTX pandemic could ‘wipe out’ several crypto companies

'Never in my career have I seen such a complete failure of corporate controls,' says the new CEO of FTX.
Baba Tamim
Sam Bankman-Fried, former CEO of FTX US Derivatives, testifies during the House Agriculture Committee hearing on May 12, 2020.
Sam Bankman-Fried, former CEO of FTX US Derivatives, testifies during the House Agriculture Committee hearing on May 12, 2020.

Tom Williams/CQ-Roll Call, Inc via Getty Images 

Cryptocurrency venture Multicoin Capital has written a letter to its investors about further fall in the business before it could recover. 

In the upcoming weeks, the company anticipates that the FTX pandemic will "wipe out" several trading firms, according to a report by CNBC

"We expect to see contagion fallout from FTX/Alameda over the next few weeks," read the letter. 

"Many trading firms will be wiped out and shut down, which will put pressure on liquidity and volume throughout the crypto ecosystem. We have seen several announcements already on this front, but expect to see more."

The company also stated that the funds have dropped by 55 percent this month due to the collapse of FTX and industry-wide price decreases.

Multicoin further voiced that the company is "trying to buy dislocated assets at attractive valuations" while other businesses with FTX-related assets look to raise emergency cash.

'FTX won't be the end'

The firm has traded on FTX, Coinbase, and Binance, three exchanges. Currently, Coinbase holds all of its assets, aside from the "capital stuck on FTX," which is about 15.6 percent of its assets.

Although there's a potential that the company will get some of its money back from FTX, as those assets are currently subject to bankruptcy procedures, it expects to write them off as being worthless.

This represents a sharp turnabout for Multicoin, a five-year-old company that unveiled a $430 million fund in July, the largest to date.

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However, "FTX won't be the end of the crypto sector," Muticoin concluded, giving some hope to the coin traders. 

That being said, the new CEO of FTX and the trading partners share the same sense of loss.

New CEO lambasted previous SBF's management

Sam Bankman-Fried's (SBF) management stood lambasted by John Ray III, FTX's new CEO, on his first-day declaration. 

"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information," read the statement by Ray III. 

The balance sheets for FTX and its sister firm Alameda Research were "unaudited and produced while the Debtors [FTX] were controlled by Mr. Bankman-Fried," Ray stated in the complaint, adding that he "did not have confidence" in their authenticity.

The former Enron recovery manager claimed, "The concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals."

Reverberating media claims of the loss of hundreds of millions of dollars worth of cryptocurrencies, Ray said that a "substantial portion" of the assets housed with FTX may be "missing or stolen."

The story doesn't end here 

A shocking emergency court filing on Thursday stated that there is evidence suggesting that Bahamian regulators instructed CEO Sam Bankman-Fried to gain "unauthorized access" to FTX systems to obtain the company's digital assets after it had filed for bankruptcy protection.

FTX made the allegations in a motion filed in Delaware's Bankruptcy Court. In that move, FTX claimed that the alleged behavior calls into "serious question" the Bahamian regulators' bid to be recognized as the bankruptcy's liquidators.

The FTX crisis is far from over; it has just begun since new developments are constantly being brought to light every day.

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