Sam Bankman-Fried informed FTX.com investors on Wednesday that the company would have to declare bankruptcy absent a capital infusion. Before Binance made a U-turn and withdrew its buyout bid, Mr. Bankman-Fried told investors on a call that his cryptocurrency exchange faced a shortfall of up to $8 billion and needed $4 billion to stay solvent. According to the source, FTX is looking to seek rescue capital through debt, equity, or a mix of the two.
Mr Bankman-Fried told investors on a call he would be “incredibly, unbelievably grateful” if investors could help, according to people with knowledge of the conversation.
An FTX representative declined to comment.
The acknowledgement of his company’s deepening troubles and limited options is a stunning turn for the crypto industry’s onetime wunderkind, who was once worth $26bn and likened to John Pierpont Morgan. It also underscores the uncertainty hanging over FTX, its clients and cryptocurrency markets.
Hanging in the balance as the exchange teeters is not just the fate of its investors and lenders but anyone who has been unable to retrieve customer assets since it halted some withdrawals earlier in the week.
The failure of crypto firms Celsius and Voyager led to billions in client money being tied up in bankruptcy proceedings.
FTX has a prominent list of backers such as Sequoia Capital, BlackRock, Tiger Global Management and SoftBank Group. Sequoia wrote down the full value of its holdings in FTX.com and FTX.us, an indication that the company sees no clear path to recouping its investment.
Still, Mr Bankman-Fried remained defiant during a hectic period of roughly 24 hours that included mounting speculation that Binance would not go through with the deal.
He repeatedly told investors during the conference call on Wednesday afternoon that it was simply not true that Changpeng Zhao was walking away from the takeover, the source said.
About an hour later, Binance said it was indeed backing out.
“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,” Binance, the crypto exchange founded by Mr Zhao, said in a statement.
In addition to the financial strains, FTX is drawing attention from the US authorities.
The Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating whether the company properly handled customer funds, as well as its relationship with other parts of Mr Bankman-Fried’s crypto empire, including his trading house Alameda Research, Bloomberg News reported on Wednesday.
Officials from the US Justice Department also are working with SEC attorneys, a source said.
Mr Zhao said in a memo earlier on Wednesday that there was no “master plan” to take over FTX, and that “user confidence is severely shaken”.
The renewed concern about contagion risk is showing up in the plunging prices of digital assets. Bitcoin fell below $16,000, the lowest in two years, after Binance’s announcement.
Coinbase chief executive Brian Armstrong said on Tuesday in a Bloomberg TV interview that if the deal with Binance fell through, it would likely mean FTX customers would take losses.
“That’s a not a good thing for anybody,” he said.
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