Crypto

Crypto Contagion From FTX Implosion Threatens Other Companies: “There Are Still Many More Bankruptcies”

The fallout from the collapse of Sam Bankman-Fried’s empire continues to ripple through financial markets, threatening the future of crypto lenders like BlockFi and Voyager Digital.

BlockFi, which said in a blog post on Monday that it had “significant exposure” to FTX and entities related to the company. The Wall Street Journal reported that the lender was preparing for a potential bankruptcy filing. This stopped withdrawals last week due to uncertainties regarding FTX.

A company representative did not respond to a request for comment.

Bankrupt crypto lender Voyager was forced to try to find a replacement buyer for its assets after FTX closes would not complete an anticipated $1.4 billion deal to buy the company.

“I don’t think we’ve seen the end of the contagion factor or the fear running through the market,” Voyager’s lead bankruptcy attorney Joshua Sussberg said in a hearing on Tuesday.

Elsewhere, crypto hedge fund Galois Capital has $40-50 million exposure to FTX, with “important” funds stuck. And Genesis brokerage needed a $140 million injection from its parent company after it disclosed $175 million in funds locked in an FTX trading account.

Falling cryptocurrency prices are also squeezing over-leveraged miners and hedge funds that have lent money to the sector, said Frank Holmes, Executive Chairman of Hive Blockchain Technologies. Bitcoin price has fallen below $17,000 in recent days from over $20,000 at the start of the month.

“There are still many more bankruptcies” to come, Holmes said in a phone interview.

FTX breached its contract to bail Voyager out of bankruptcy, Sussberg told the judge handling Voyager’s Chapter 11 case. FTX has agreed that Voyager may pursue other offers, but has not yet confirmed that the now-bankrupt company is opting out of the deal to buy the smaller crypto firm, Sussberg said.

“We were shocked, upset, appalled,” Sussberg said at a Voyager bankruptcy hearing. “There will be no transaction with FTX, I think that’s pretty obvious.”

All the problems make long-time crypto skeptics repeat their warnings.

“It’s part fraud and part delusion,” Charlie Munger, vice president of Berkshire Hathaway say it CNBC Tuesday. “It’s a bad combination. I don’t like fraud or illusion. And the illusion can be more extreme than the fraud.

Not all digital asset companies have been so unlucky. Celsius Network, the already bankrupt crypto lender dogged by allegations of mismanagement, had cut its exposure to FTX by 99% before the group collapsed.

Celsius had tangles with FTX totaling $3.6 billion in January, Chief Restructuring Officer Chris Ferraro said during a bankruptcy court hearing on Tuesday. That figure is now closer to $13 million, he said, following a concerted effort to wean itself off third-party crypto platforms.

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