© Reuters. FILE PHOTO: A representation of bitcoin is seen in front of a stock graph in this illustration taken May 19, 2021. REUTERS/Dado Ruvic/Illustration
By Angus Berwick and Anirban Sen
(Reuters) – FTX is scrambling to raise about $9.4 billion from investors and rivals, a source said on Thursday, as Chief Executive Sam Bankman-Fried urgently seeks to save the cryptocurrency exchange that has been buffeted by a rush of customer withdrawals.
Over the past few hours, Bankman-Fried has discussed raising $1 billion each from Justin Sun, the founder of crypto token Tron, rival exchange OKX and stablecoin platform Tether, according to the source who has direct knowledge of the matter.
He is seeking the remainder from other funds, including current investors in FTX such as venture capital fund Sequoia Capital, the source added.
It was not clear, however, whether Bankman-Fried will be able to raise the funds he needs and these investors would participate.
Tether’s chief technology officer, Paolo Ardoino, tweeted that it had “no plans to invest in or lend assets to FTX.”
One of the 30 to 40 investors in FTX’s data room is Daniel Loeb’s Third Point, but according to a source familiar with the matter the hedge fund is not discussing giving FTX more money.
FTX and Sequoia did not immediately respond to requests for comment on the latest news of talks. OKX also was not immediately available for comment on the latest news of talks. Earlier on Thursday, however, OKX told Reuters it had been approached this week by Bankman-Fried, who described liabilities of $7 billion that needed covering fast.
“That was too much for us,” Lennix Lai, director of financial markets at OKX, told Reuters.
In a tweet, FTX said it had reached a deal with Tron to establish a special facility that would allow clients to swap some crypto assets from FTX to external wallets. It said initially $13 million of assets will be deployed to facilitate the swaps.
Earlier in the day, Bankman-Fried said in tweets and a memo to employees seen by Reuters that he was in talks with “a number of players” in the crypto sector, including Sun, after a potential rescue deal with larger rival Binance fell apart.
But he added that he did not want to “imply anything about the odds of success.”
Bankman-Fried also said his trading firm Alameda Research, which sources have said was partly behind FTX’s problems, was winding down trading.
FTX’s predicament marks a stunning downfall for the 30-year-old crypto executive who was once worth nearly $17 billion, but in a matter of days transformed from his status of industry savior to the one who needed saving.
The problems at FTX, one of the world’s largest crypto exchanges, have triggered a broader crisis of confidence in cryptocurrencies, with bitcoin falling below $16,000 overnight for the first time since late 2020.
Pain in crypto land Pain in crypto land https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/lbvggrkadvq/chart.png
However, a surge in the broader market after better than expected U.S. inflation data also buoyed cryptocurrencies. FTX’s native token, FTT, was up nearly 140% at $3.61 in midday trading but down more than 80% for the week. Bitcoin was trading at $17,563, up more than 10.5%.
Trading volumes in bitcoin futures and exchange traded funds have exploded amid the turmoil. Bankman-Fried said FTX.US, the U.S. operations of the exchange, had not been financially impacted.
The seeds of FTX’s downfall were sown months earlier, in mistakes made by Bankman-Fried after he stepped in to save other crypto firms, sources have said.
The sources told Reuters that FTX transferred at least $4 billion to Alameda, including some customer deposits, to prop up the trading firm after a series of losses.
Bankman-Fried told investors that Alameda owes FTX about $10 billion, the Wall Street Journal reported. FTX had lent more than half of its customer funds to Alameda, the newspaper said.
The U.S. securities regulator is investigating FTX.com’s handling of customer funds and crypto-lending activities, according to a source with knowledge of the inquiry.
Reuters could not learn what specific activities were the focus of the probe.
Users rushed to withdraw $6 billion in crypto tokens from FTX within days, after a news report earlier this month raised questions about Alameda’s balance sheet and Binance CEO Changpeng “CZ” Zhao tweeted that his firm would sell its entire share in FTT, which gives holders discounts on FTX trading fees. The outflow caused a liquidity crunch at FTX.
Some investors were writing off funds ploughed into FTX. Sequoia wrote down a $150 million exposure to zero on Wednesday. Canada’s Ontario Teachers Pension Plan, Tiger Global and Japan’s Softbank are also FTX investors.
One focus among investors is on the unknown size of customer losses and the hit to sentiment from the latest and possibly largest collapse in an industry that has turned into a minefield for investors.
Crypto asset manager Coinshares said it has $30.3 million total exposure to FTX.
Broker Robinhood (NASDAQ:HOOD) said it has no direct exposure to FTX, but Bankman-Fried holds a stake in the firm and its shares fell heavily on Tuesday and Wednesday.
Bankman-Fried, who is from California but lives in the Bahamas where FTX is based, said the company would take a “hard look” at governance and that he “will not be around if I’m not wanted.”
He also repeatedly apologized. “I am sorry. That’s the biggest thing,” he tweeted.
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