Sam Bankman-Fried, founder and CEO of crypto exchange FTX, warns that some cryptocurrency exchanges may already be insolvent and that failures are imminent.
What Happened: “There are some third-tier exchanges that are already secretly insolvent,” Bankman-Fried told Forbes.
Bankman-Fried didn't name any exchanges in particular, but his comments come at a time when a number of crypto hedge funds and lending platforms are facing dire liquidity issues.
Benzinga recently reported that major crypto investment firm Three Arrows Capital (3AC) has several positions liquidated. The firm now looks likely to default on a $675 million loan repayment to digital asset brokerage Voyager Digital.
Meanwhile, crypto lending platform Celsius has put all withdrawals on hold in light of an ongoing liquidity crisis. The company said stabilizing operations would take time after its native token CEL crashed 50% following the news.
It is unlikely that Bankman-Fried is referring to popular crypto exchange Coinbase Global Inc. COIN, which — despite announcing companywide layoffs as crypto trading activity dwindles — still maintains a cash buffer on its balance sheet.
Coinbase has seen the value of its stock prices tumble in the wake of Bitcoin’s BTC/USD sharp decline.
It is also unlikely that the FTX CEO believes Robinhood Markets Inc. HOOD to be insolvent given the fact that FTX owns a 7.6% stake in the firm and there are rumors of an acquisition.
However, the same can’t be said for the lesser-known exchanges with lower levels of trading volumes.
“There are companies that are basically too far gone and it's not practical to backstop them for reasons like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved,” Bankman-Fried added.
See Also: Is Bitcoin A Good Investment?
Price Action: At press time, Bitcoin was trading at $20,316 as per data from Benzinga Pro, down 2.32% over the last 24 hours. The market-leading cryptocurrency is trading 70% below its all-time high.
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