Concerns over FTX’s financial health continued to weigh on cryptocurrency-exposed stocks Wednesday, even after Binance announced in the afternoon that it had withdrawn its commitment letter to acquire rival exchange FTX.
MicroStrategy (MSTR), a technology company that stores over 130,000 bitcoins, had a 20% drop in its stock price on Wednesday. Coinbase (COIN), a cryptocurrency exchange, fell 9.5%. On the Toronto Stock Exchange, crypto-focused bank Silvergate (SI) sank 12%, while financial services company Galaxy Digital (GLXY.TO) dropped 16%. Riot Blockchain (RIOT) and Marathon Digital (MARA) are two bitcoin mining companies whose stocks fell.
On Wednesday, Sam Bankman-Fried informed FTX.com’s investors that the firm would have to declare bankruptcy without a capital infusion.
Mr. Bankman-Fried reportedly told investors on a teleconference before Binance reversed course and canceled its buyout bid that his cryptocurrency exchange faced a deficit of up to $8 billion and required $4 billion to be sustainable.
The insider also said that FTX is trying to get rescue funding via the sale of debt, stock, or a hybrid of the two.
The crypto industry’s former wunderkind, once valued at $26 billion and compared to John Pierpont Morgan, has made a dramatic about-face by admitting his firm is in severe difficulties and has few choices. It also shows how much doubt exists about FTX, its customers, and the cryptocurrency markets.
As the exchange teeters, not only the destiny of its financiers hangs in the balance, but also that of customers who have been unable to reclaim their funds since the exchange froze payments earlier in the week.
Upon the collapse of Celsius and Voyager, billions of dollars in customer funds were held up in bankruptcy procedures.
Sequoia Capital, BlackRock, Tiger Global Management, and SoftBank Group are some of FTX’s high-profile investors. With no apparent way to recuperate its investment, Sequoia wrote down the whole value of its stakes in FTX.com and FTX.us.
Mr. Bankman-Fried was stubborn even as rumors grew that Binance would back out of the transaction throughout the preceding 24 hours. During the conference call with investors on Wednesday afternoon, he reportedly informed each one again that Changpeng Zhao was not backing out of the deal.
After waiting around an hour, Binance finally confirmed that it was withdrawing.
“We intended to be able to provide FTX’s clients to offer liquidity, but the challenges are beyond our power or capacity to help,” Binance, the cryptocurrency exchange established by Mr. Zhao, said in a tweet.
Financial stresses aside, FTX is getting the attention of the US government.
Bloomberg News reported on Wednesday that the SEC and the CFTC are looking into the company’s handling of client cash and its connections to other aspects of Mr. Bankman-cryptocurrency Fried’s empire, such as his trading firm Alameda Research.
Attorneys from the SEC are reportedly engaging with US Justice Department officials.
Earlier on Wednesday, Mr. Zhao wrote in a letter that “user trust is seriously damaged” and that there was no “master plan” to take over FTX.
The falling values of digital assets are reflecting the growing anxiety about contagion risk. After Binance’s statement, the price of bitcoin dropped to its lowest level in two years, below $16,000.
On Tuesday, Coinbase CEO Brian Armstrong stated in an interview with Bloomberg TV that FTX clients would incur losses if the agreement with Binance fell through.
He said, “That’s not a positive thing for anyone.” The drama surrounding FTX, until recently considered among the top corporations in the crypto market, has caused widespread disruption in the industry.
Bitcoin, the most valuable cryptocurrency, lost about 16 percent of its value on Wednesday. A year ago, it hit an all-time high of about $69 thousand. The FTX utility token, FTT, has dropped 92% this week to around $1.94.
The FTX-Binance drama echoes the difficulties experienced by Celsius, the defunct crypto lender, earlier this year and those encountered by other businesses throughout the tumultuous year for digital assets.
After crashing on Wednesday, prompted by Binance’s decision to withdraw its bid to acquire FTX.com, cryptocurrencies have recovered some of their losses and provided some relief to investors.