The FTX Mess - I Hope My Story Helps
Yesterday was a blur.
I get up between 5 and 6 am everyday to read and write and check markets (old habit) and yesterday was no different.
I wrote my post and was reading and making some calls and I started to get messages about the problems at FTX. There had been rumors for a few days about leverage and their balance sheet.
I pulled up CZ's, the Binance founder, tweets and saw this:
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 Binance (@cz_binance)
Nov 8, 2022
Needless to say, I spent the rest of the day on the phone talking to friends who directly invested in FTX and companies in my portfolio that rely on FTX. Stocktwits for example uses FTX to process crypto trades. Rishi and team did all the right things fast and shared this update with customers:
Next I called Yoshi at Alpaca to discuss same. On and on the day went. Really great traders/investors/friends were calling me and asking for an explanation of what was going on. Articles were getting shared. I thought Milk Road laid it out pretty well.
Personally, I have very little direct exposure to FTX and was dealing with it, but I have a lot of indirect exposure through Multicoin Capital and possibly other funds so I was waiting patiently for some detailed explanations from them. By about 10 pm PST last night I did get some detailed explanations and to be honest, I felt sick reading them. Nobody wants to write letters like that or receive them.
I think I can safely say there was a lot of fraud and leverage involved inside and around FTX. There will be a lot of collateral damage in the coming months.
This is one of those sadly historic days in markets, even though it is happening in the unregulated digital world.
Hopefully , this story I will share below will help some people in stress or fear today...
Way way way back in 2001, I discovered a fraud that was being perpetrated at a brokerage firm I was a partner at. The gist:
Days like yesterday bring back all the horrific feelings and memories. I feel terrible for the many innocent bystanders that have been dragged into the fraud and now cleanup.
Some of the biggest firms/brands in venture capital had been investing in FTX along the way...
Ontario Pension Fund
— Frank Chaparro (@fintechfrank)
Nov 9, 2022
Good luck out there today.