At our most recent communication, the saga surrounding the FTX exchange had just begun. We tell you how the Binance CEO’s revelations created a real run to the bank to its competitor FTX, which ultimately led to the discovery of the company’s insolvency. Exactly one week ago, Binance announced an agreement in principle to acquire its competitor in order to protect investors’ assets.
… And it will have been short-lived. Just the next day, after what seemed like an easy look at FTX’s books, Changpeng Zhao quickly announced that he was abandoning the acquisition of the exchange, as the latter’s finances were simply bad. On November 11, FTX CEO Sam Bankman-Fried announced that the company was filing for bankruptcy and that he was stepping down. The company’s sister entity, algorithmic trading firm Alameda Research, its US subsidiary FTX.US and approximately 130 affiliated entities are included in this bankruptcy. In short, an earthquake so strong in the sector that it can be defined black Swan. To add insult to injury, the FTX swap was done pirate In a suspicious moment on Sunday, $477 million in assets were stolen from the bankrupt company’s reserves. Since then, the domino effect has rocked companies with exposure to FTX…and there are many.
Crypto lending firm BlockFi has suspended withdrawals from its platform and, according to information gathered by the Wall Street Journal, is also in preparations to file for bankruptcy protection. A few hours ago, the Genesis Global Capital firm, which serves institutional clients and had total loan assets of $2.8 billion as of the end of the third quarter of 2022, announced the suspension of withdrawals from its crypto lending branch. The services of business and Genesis custody remain fully operational.
More than a million creditors may have claims against the bankrupt FTX exchange, according to new court documents. In a filing in Delaware bankruptcy court, FTX’s attorneys asked for a change to the normal rules to accommodate the large number of entities owed money in this case. One such lender is wealth management firm Paradigm, founded by Matt Huang. The company website currently mentions FTX and FTX.US in his wallet. Reports suggest his investment in the exchange is around $278 million. California hedge fund Ikigai Asset Management held the “vast majority” of its assets on the defunct FTX exchange, according to firm founder and chief investment officer Travis Kling. Everything indicates that the fund will not be able to survive the crisis.
When we confront each other, we console ourselves. The decline in the markets is certainly not good for the Rivemont Crypto Fund, no one escapes a crisis like this. However, we have no exposure to FTX, having always opted for highly regulated partners. The fund uses the Gemini platform, which quickly confirmed, even though we already know it, that “Gemini is a full reserve exchange and custodian. This means that all client funds held on Gemini are held 1:1 and can be withdrawn at any time. “. It adds that “For the avoidance of doubt, Gemini has no exposure to FTT or Alameda tokens and no material exposure to FTX. “. In short, investors’ funds remain completely safe.
The dust is only starting to settle as it becomes clear that some businesses will be fatally caught in the webs woven by this crisis. The fact remains that we are already beginning to draw lessons and conclusions. The first is undoubtedly that the future of the sector risks being regulated, rather than seeking the easy way out through companies established in tax havens. Again, it is not a mere example of mismanagement, but outright fraud schemes and absurd risk management leverage strategies that bring down this house of cards. Regulators themselves now have every case to put in place a framework that protects investors. Ultimately, this will allow for a higher level of trust, which is now greatly eroded. As a result, while institutional investors are certainly put off for the short term, the path to a framework they can actually fit into may be starting to be paved.
There is also a certain irony that deserves mention. Bitcoin was born following and in response to the 2008 crisis, where irresponsible leverage strategies led to the collapse of the centralized financial structures that participated in it. Bitcoin serves precisely to obviate the need for these entities. This is his basic proposition. What we are seeing today is not a bitcoin rift, quite the opposite. Profit-hungry centralized structures in an underregulated industry used cryptocurrencies in the same way as these financial products 15 years ago. The result is the same. It is a new failure of centralized finance coupled with the greed of its actors and the consequent mismanagement of risk. Bitcoin is not the source of this problem, it is still a solution to this day.
Just in the search for solutions to restore confidence in the markets, Chanpeng Zhao is trying to stand as a leader. The latter said that Binance is working on implementing a new reserve testing protocol developed by Ethereum co-founder Vitalik Buterin. The backup-proof protocol, which has been around for a few years, uses the Merkle tree algorithm to put a large amount of data into a single hash and effectively verify the integrity of the entire dataset. He argues that any exchange should incorporate such a protocol. “We typically need a third-party reviewer to engage. Unfortunately, our number one third-party auditor was a little busy, because he’s also the reserves auditor at FTX, and you know, there’s a little bit of oversight there,” the Binance CEO said.
Binance is also building an “industry recovery fund” to help projects weather potential liquidity crises. “To reduce the cascading negative effects of FTX, Binance is forming an industry recovery fund to help otherwise strong but cash-strapped projects,” CZ wrote. Several crypto personalities, including Tron founder Justin Sun and BankToTheFuture CEO Simon Dixon, have already expressed their willingness to join the initiative. “Let’s make this an industry effort,” Dixon wrote.
Certainly, while we were steadily finding buyers and fewer sellers in the fall consolidation channel, it appears we are seeing the capitulation phase of the cycle, where tokens are moving from worried investors to those preparing for the next round. In retrospect, these are often the ideal times to enter the market and thus maximize your future return on investment. This is all the more true as it is not the problems or abandonment of cryptocurrencies that are creating the decline, but the companies that surround them.
The fund remains in a defensive position, but has still been heavily impacted by events. Its placement is roughly 40% in BTC, 40% in cash, and most of the rest in ETH.
This article is offered by Fonds Rivemont. The Rivemont Crypto Fund is the first and only actively managed crypto fund in Canada. Eligible for RRSP and TFSA. Accredited investors can find out more here.
Disclaimer: This column does not necessarily reflect the opinion of CryptonewsFR and does not constitute investment advice or trading instructions..
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