The country has bet on cryptocurrencies by investing in bitcoin.
The fall of former trader Sam Bankman-Fried’s crypto empire has taken the crypto industry by surprise.
FTX.com, his cryptocurrency exchange, and Alameda Research, his trading platform, are on the verge of bankruptcy, confirmed on November 10 by Bankman-Fried, whose personal fortune has completely disappeared.
On the morning of November 8, the 30-year-old was a billionaire thanks to FTX, which was valued at $32 billion in February, and Alameda. His fortune was, at the time, estimated at $15.6 billion. A few hours later, this net wealth disappeared with the announcement that Bankman-Fried was selling his empire to his rival Changpeng Zhao.
Bankman-Fried was only worth $1 billion in the evening of November 8, according to the Bloomberg Billionaires Index. That fortune has shrunk further with the decline in the value of his Robinhood (HOOD) – Get Free Report stake.
Massive $5 Billion Withdrawals
The downfall of this cryptocurrency evangelist, who was the institutional face of the industry, was precipitated by speculation about the financial health of his companies, after a report indicated that the balance sheet of Alameda was made up mostly of FTT.
FTT is the cryptocurrency issued by FTX. In other words if FTT prices crashed, FTX and Alameda would be left with nothing. FTX rival Binance was the first to announce on November 6 the sale of $500 million worth of FTT. On the same day, many customers rushed to withdraw around $5 billion from the platform, Bankman-Fried said on November 10. It was the largest withdrawal ever made on FTX.
As a result, the firm had to urgently request the help of Binance, which offered to acquire the group on November 8. But in the last twist of this drama, Binance announced on November 9 after checking the books, the firm had decided to withdraw, because the problems were more serious than expected.
Now FTX is on the verge of bankruptcy, which it can only avoid if it succeeds in raising around $8 billion.
For FTX customers, there is a lot of uncertainty. There’s no guarantee that they will recover their cryptocurrencies. It is in this context that billionaire and former Goldman Sachs banker Mike Novogratz indicated on November 10, in an interview with CNBC, that El Salvador was among the institutional investors who had stored their bitcoins on FTX. In other words, the country was in a very bad situation.
El Salvador has been one of the pioneers in adopting bitcoin as a currency.
No Business with FTX
But the country denied Novogratz’s information to billionaire Changpeng Zhao, the CEO and co-founder of Binance. Zhao said he spoke with president Nayib Bukele.
“Man, the amount of misinformation is insane,” Zhao posted on Twitter. “I exchanged messages with President Nayib a few moments ago. He said ‘we don’t have any Bitcoin in FTX and we never had any business with them. Thank God!’”
Zhao’s message prompted Novogratz to later apologize, claiming to have spread false information without having verified it beforehand.
“Apologies to @nayibbukele and the people of El Salvador. I fell for ‘fake news’ and while I mentioned I hadn’t confirmed it, I should have. Thanks @cz_binance for pointing it out. I am a huge fan of what you are doing in El Salvador,” the former banker said.
Galaxy Digital, Novogratz’s firm, disclosed on November 9 that it has approximately $76.8 million in total exposure to FTX.
“In the short run, people are nervous,” the billionaire told analysts.
This is not the first time that Novogratz and Galaxy Digital (BRPHF) have suffered losses related to a crypto scandal. They suffered losses after the collapse of sister cryptocurrencies Luna and UST, or TerraUSD, last May. The former banker was a fan of Luna, having gotten a tattoo of its symbol.
“My tattoo will be a constant reminder that venture investing requires humility,” Novogratz said at the time.
Galaxy Digital invested in Luna in fourth-quarter 2020.
