Jan 24 (Reuters) – Paranoid? The domino downfall of FTX and other crypto custodians is enough to make the most trusting investor grab their bitcoin and shove it under the mattress.
Indeed, holders big and small are taking “self-custody” of their funds, moving them from crypto exchanges and trading platforms to personal digital wallets.
In a sign of this shift among retail investors, the number of bitcoin held in smaller wallets – those with under 10 bitcoin – rose to 3.35 million as of Jan. 11, up 23% from the 2.72 million held a year ago, according to data from CoinMetrics.
As a percentage of total bitcoin supply, wallet addresses holding under 10 bitcoin now own 17.4%, up from 14.4% a year ago.
“A lot of this really depends on how frequently you’re trading,” said Joshua Peck, founder of hedge fund TrueCode Capital. “If you’re just going buy and hold for the next 10 years, then it’s probably worth making the investment and learning how to custody your assets really, really well.”
The stampede has been turbocharged by the FTX scandal and other crypto collapses, with large investors leading the way.
The 7-day average of daily movement of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November, at the time of FTX collapse, according to data from Chainalysis.
Big investors with transfers of above $100,000 were responsible for those flows, the data showed.
Reuters Graphics
WHERE ARE MY KEYS?
Not your keys, not your coins.
This mantra among early crypto enthusiasts, cautioning that access to your funds is paramount, regularly trended online last year as finance platforms dropped like flies.
Self-custody’s no walk in the park, though.
Wallets can range from “hot” ones connected to the internet or “cold” ones in offline hardware devices, although the latter typically don’t appeal to first-time investors, who often buy crypto on big exchanges.
The multi-level security can often be cumbersome and expensive process for a small-time investor, and there’s always the challenge of guarding keeping your encryption key – a string of data similar to a password – without losing or forgetting it.
Meanwhile, hardware wallets can fail, or be stolen.
“It’s very challenging, because you have to keep track of your keys, you have to back those keys up,” said Peck at TrueCode Capital, adding: “I’ll tell you it’s a very challenging prospect of doing self custody for a multi-million-dollar portfolio of crypto.”
Institutional investors are also turning to regulated custodians – specialized companies that can hold funds in cold storage – as many traditional finance firms would not legally be able to “self-custody” investors’ assets.
One such firm, BitGo, which provides custodian services custody for institutional investors and traders, said it saw a 25% increase in onboarding inquiries in December versus the month before from those looking to move their funds from exchanges, plus a 20% jump in assets under custody.
David Wells, CEO of Enclave Markets, said trading platforms were extremely cautious of the risks of storing the investors’ assets with a third party.
“A comment that stuck with me was ‘investors will forgive us for losing some of their money through our trading strategies, because that’s what they sign up for, what they’re not going to forgive us is for being poor custodians’.”
Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Pravin Char
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Jan 20 (Reuters) – T-Mobile (TMUS.O), the No.3 U.S. wireless carrier by subscribers, said on Thursday it was investigating a data breach involving 37 million postpaid and prepaid accounts and that it could incur significant costs related to the incident.
The company, which has more than 110 million subscribers, said it identified malicious activity on Jan. 5 and contained it within a day, adding that no sensitive data such as financial information was compromised.
However, some basic customer data — such as name, billing address, email and phone number — was obtained, and it had begun notifying impacted customers, said T-Mobile.
“Our investigation is still ongoing, but the malicious activity appears to be fully contained at this time, and there is currently no evidence that the bad actor was able to breach or compromise our systems or our network,” the company said.
The U.S. Federal Communications Commission (FCC) has opened an investigation into the data breach, the Wall Street Journal reported on Thursday, citing an FCC spokesperson.
FCC and T-Mobile did not immediately respond to Reuters’ requests for comment on the reported investigation.
“While these cybersecurity breaches may not be systemic in nature, their frequency of occurrence at T-Mobile is an alarming outlier relative to telecom peers,” said Neil Mack, senior analyst for Moody’s Investors Service.
“It could negatively impact customer behavior, cause churn to spike and potentially attract the scrutiny of the FCC and other regulators.”
Last year, T-Mobile agreed to pay $350 million and spend an additional $150 million to upgrade data security to settle litigation over a cyberattack in 2021 that compromised information belonging to an estimated 76.6 million people.
The Bellevue, Washington-based company’s shares fell 2% in after-hours trade.
Reporting by Eva Mathews and Lavanya Ahire in Bengaluru; Editing by Sriraj Kalluvila, Maju Samuel, Rashmi Aich and Savio D’Souza
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DAVOS, Switzerland, Jan 19 (Reuters) – In the snow and ice on the main drag in Davos, the impact of the crypto winter is plain for WEF attendees to see.
Last May, the dressed-up shop fronts that line both sides of the Promenade street running through the Swiss ski resort were dominated by crypto firms, rolling in bitcoin.
Now there are just a handful and the executives who have made it to Davos have swapped their hoodies for blazers, despite sub-zero temperatures outside.
Some of those from the digital industry which have set up shop on the fringes of the World Economic Forum (WEF) annual meeting were quick to distance themselves from cryptocurrencies.
“I hope there’s an increased focus on utility value and practical applications of the technology, and less focus on retail investors chasing meme coins,” Jeremy Allaire, CEO of USDC stablecoin issuer Circle, said.
“There was a lot of nonsense,” Allaire told the Reuters Global Markets Forum.
Former Reserve Bank of India Governor Raghuram Rajan believes last year’s plunge in digital assets allows investors to focus on the true value of the technology.
“We’re at the right place now in terms of crypto,” he said.
Executives in Davos said they are now all about blockchain technology, proper controls and regulation, and the promise of disruption that it holds for financial services and beyond.
“We are an infrastructure, plumbing play. We build infrastructure today for digital assets, which is crypto. Tomorrow it will be different assets,” said Dmitry Tokarev, chief executive of Copper, which provides custody services.
“I would question some of the stuff that I saw, ‘What is the return on that?'” Tokarev added, referring to the big presence of crypto companies at the last WEF meeting, which was unusually held in May as a result of the COVID-19 pandemic.
“We have been always ignoring the noise. All our partners were here last year. They are here this year,” Tokarev added.
The world of digital assets has changed drastically since May, with the value of the crypto market plummeting and some of the major crypto companies going under as investors pulled back from riskier assets in the face of rising interest rates.
The market capitalization of crypto currencies has shrunk by $1.4 trillion, a third of its value from peaks hit in late 2021 and some of the best-known crypto firms are under stress or have gone under, including the collapse of crypto exchange FTX.
“There is a place for trading use cases but they cannot be the singular focus, we need to move to more real use cases and put attention there,” said Denelle Dixon, CEO of Stellar Development Foundation, which supports the Stellar blockchain.
‘DODGED A BULLET’
While interest remains in the technology, the conversation is turning to responsibility.
Colm Kelleher, chairman of Swiss bank UBS (UBSG.S), told a WEF panel that blockchain technology will help reduce costs for banks. But he said the industry needed to figure out the basics, such as anti-money laundering controls.
“We kind of dodged a bullet,” Kelleher said, noting that the collapse in the value of crypto currencies had not caused systemic problems. “We did have investors who did want to invest in coinage. And we had to draw a line on what was suitable for those investors,” he added.
Yat Siu, co-founder of Hong Kong-based blockchain gaming developer Animoca Brands, was supportive of the firms in Davos.
“These are companies with serious cash positions and revenue generating companies,” Siu said. “They’re billion dollar enterprises.”
Crypto is trying to establish its presence, SkyBridge Capital founder Anthony Scaramucci said, adding “there’s nothing more establishment than the World Economic Forum.” Scaramucci maintains a bullish stance on crypto despite losses last year.
Back on the Davos Promenade, some signs of crypto’s lost swagger endure.
Parked right outside a pavilion promoting blockchain early in the week was a bright orange Mercedes.
On the hood, instead of the carmaker’s insignia was a copper-colored symbol for bitcoin.
The tires carried a slogan in white: “In Bitcoin we trust”.
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Additional reporting by Lananh Nguyen in Davos, Stefania Spezzati and Lisa Mattackal; Editing by Alexander Smith
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Jan 17 (Reuters) – Bitcoin is on the charge in 2023, dragging the crypto market off the floor and electrifying bonk, a new meme coin.
The No.1 cryptocurrency has clocked a 26% gain in January, leaping 22% in the past week alone, breaking back above the $20,000 level and putting in on course for its best month since October 2021 – just before the Big Crypto Crash.
Ether has also risen, by 29% this year, helping drive the value of the overall global cryptocurrency market above $1 trillion, according to CoinGecko.
“After a rough year last year for cryptos, we are seeing a form of mean reversion,” said Jake Gordon, analyst at Bespoke Investment Group, referring to the theory of asset prices returning to long-term averages.
Researchers said investor bets on a rosier macroeconomic picture were driving a jump in riskier assets across the board.
Few crypto tokens have benefited more than bonk, which was launched at the end of December on the Solana blockchain and had rocketed 5,000% by early January. It has since fallen back, though remains up 910% since the start of the year.
It is the latest entrant to the hyper-volatile world of meme coins, cryptocurrencies inspired by online memes and jokes, and is modeled after the same grinning Shiba Inu dog as dogecoin – which itself was catapulted to fame by Elon Musk tweets.
Bonk’s a puppy, though.
Even at its peak it was worth just $0.000004873759 with a market capitalization of about $205 million.
Other meme tokens are also up, with dogecoin and Shiba Inu up 19% and 27% respectively in 2023.
But buyers beware.
“Investors need to be especially cautious when it comes to coins like doge, Shiba Inu and bonk,” said Les Borsai, co-founder of digital assets services firm Wave Financial.
“They fall just as hard as they surge.”
Nonetheless, some market players pointed to the relative cheapness of these tokens – doge is worth about eight cents – as a reason why speculators were willing to place bets on them.
“Meme coins belong to crypto, it’s part of the culture,” said Martin Leinweber, digital assets product specialist at MarketVector Indexes. “It just takes a few lines of codes to create a meme token and if you have a community for it, people love that.”
RUMORS OF SOL’S DEATH EXAGGERATED
Bonk is a meme coin with a mission. It was created, in part, to support the Solana blockchain, which has seen an exodus of funds and users since crypto exchange FTX filed for bankruptcy in November, and its native Solana token drop over 37%.
The Solana token has now indeed jumped as bonk has gained traction: it’s up 131% in 2023, the biggest gainer among major cryptocurrencies.
“Rumors of Solana’s death seem to have been greatly exaggerated,” said Tom Dunleavy, senior research analyst at data firm Messari. “Despite the recent price appreciation seemingly being driven by speculation, the underlying ecosystem remains quite strong.”
Reuters Graphics
TOO EARLY TO CALL A CRYPTO REVERSAL
Some researchers chalked the crypto gains up to optimism that inflation had peaked, reducing the need for tighter central bank policy.
“Bitcoin and crypto tend to front-run everything, which is why we’ve seen notable relative strength in this asset class of late,” said Wave Financial’s Borsai.
There’s certainly been an increase in activity.
The dollar value of bitcoin trading volumes on major exchanges over a 7-day period jumped to $151 million, the highest in nearly two months, according to data from Blockchain.com.
Total bitcoin flows – representing all uses including trading and payments – have increased by 13,130 bitcoin on average in the last 7 days, the largest rise in 64 days, Chainalysis data showed.
However, market watchers warned against celebrating too soon, noting trading volumes remained low and the macroeconomic environment uncertain.
“It’s too early to declare a definitive reversal for the crypto market despite the recent strength we’ve seen of late,” said Aaron Kaplan, co-founder of Prometheum, a digital asset securities trading platform.
“If interest rate increases are below what the market expects, then risk assets will benefit and crypto prices will likely continue the uptrend, but there’s just too much uncertainty right now.”
Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Pravin Char
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Echoes of dotcom crash that fueled Facebook, others
Jan 3 (Reuters) – Nic Szerman lost his job at Meta Platforms (META.O) in November, just two months after joining full-time, falling victim to a sweeping 13% reduction of its workforce as the advertising market cratered.
Days later he was back working, seeking investment for his own company Nulink, a blockchain-based payment company, and sent pitches to startup accelerator Y Combinator and Andreessen Horowitz’s cryptocurrency fund.
“As counterintuitive as it may sound, this layoff left me in a really good position,” the 24-year-old said. “Because I don’t have to pay back the sign-on bonus, I get four months of pay, and now I have time to focus on my own project.”
Szerman is part of a wave of would-be entrepreneurs who are emerging from the ashes of the mass job losses seen in Silicon Valley in the second half of 2022, according to venture capitalists.
U.S. tech giants including Meta, Microsoft (MSFT.O), Twitter and Snap (SNAP.N) have purged more than 150,000 staff, according to Layoff.fyi, which tracks technology job losses.
While overall venture capital (VC) financing fell 33% globally to about $483 billion in 2022, early-stage funding was robust, with $37.4 billion raised in so-called angel or seed rounds, in line with the record level seen in 2021, according to data from research firm PitchBook.
Day One Ventures, an early stage venture fund in San Francisco, launched a new initiative in November to fund startups founded by people who had been laid off from their tech jobs, touting the slogan “Funded, not Fired”.
The program aims to cut 20 checks for $100,000 by the end of 2022. Day One said it had received over 1,000 applications, most of them from people who were cut loose by Meta, Stripe and Twitter.
“We’re investing $2 million in 20 companies – if we just find one unicorn it almost returns the fund, which I think is a really unique opportunity for us as fund managers,” said Masha Bucher, co-founder at Day One Ventures.
“Looking at the last economic cycle, companies like Stripe, Airbnb, Dropbox have been created in crisis.”
HOT: GAMING AND AI
Also in November, multi-stage fund Index Ventures, which has bankrolled Facebook, Etsy and Skype, launched its second Origins fund, which will invest $300 million in early-stage startups.
Silicon Valley investor U.S. Venture Partners and Austrian VC firm Speedinvest have meanwhile earmarked a similar amount for newly founded companies.
Investors highlighted gaming and artificial intelligence among hot areas of interest.
“With advances in game design, new innovations like cloud gaming, and the emergence of social networking in this sphere, gaming has really transcended into mainstream culture,” said Sofia Dolfe, partner at Index Ventures.
“In every period of economic uncertainty, there is opportunity – to reset, re-prioritize and re-focus energy and resources.”
DOTCOM BUBBLE 2.0
Szerman said his project was rejected by Y Combinator, while he hasn’t heard back from Andreessen Horowitz yet, though he added that other early-stage venture capitalists had expressed interest.
“I told the investors we’ll chat in two or three months,” he added. “I’ll focus on scaling the system now.”
Some investors compared the 2022 downturn to the dotcom crash of the early 2000s, when dozens of overvalued startups went bust, flooding the market with talent and helping to spark a wave of new companies such as Facebook and YouTube.
“Many great companies have been created in relatively dark times,” said Harry Nelis, partner at investment firm Accel, who sees a new generation of risk takers emerge among the swathe of people left unemployed.
Some industry players say former Big Tech employees are uniquely placed to start their own companies, having seen first-hand how some of the biggest firms in the world operate, and enjoying ongoing access to their network of highly skilled colleagues.
One former Googler has sought to help others like him looking for life after technology giants. In 2015, Christopher Fong, who spent almost a decade working for the tech titan in California, launched Xoogler, a project designed to help former employees hoping to start their own companies. Since then, the group’s membership has since swelled to more than 11,000.
Fong told Reuters that experience in Big Tech firm gave founders a “strong brand that can be leveraged to meet investors, potential customers, and recruit team members”.
(This story has been refiled to correct Harry Nelis’ designation to partner from managing partner in paragraph 19)
Reporting by Martin Coulter in London, Supantha Mukherjee in Stockholm and Krystal Hu in New York; Editing by Pravin Char
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Dec 13 (Reuters) – Plucky bitcoin’s been holding steady since seeing off the chaos of the FTX collapse, gathering its strength to rally towards the dizzy heights of $30,000 in 2023.
Battered bitcoin’s been unresponsive since being clobbered by the FTX collapse, taking in a deep ragged breath before plunging towards the depths of $5,000.
Place your bets, spin the wheel.
The world’s dominant cryptocurrency has certainly been uncharacteristically muted over the past two weeks, treading water between about $15,770 and $17,350 in the eerie wake of the FTX-induced market mini-crash in November.
What happens next is anyone’s guess.
“The question we need to be asking ourselves now is: Are there any sellers left in this market? To my mind, no, there aren’t that many left,” said Jacob Sansbury, co-founder of retail investor services firm Pluto.
Sansbury believes most over-leveraged miners, who tend to be large holders of bitcoin, have exited positions to pay off debts taken out in traditional money to fund their equipment and operations.
Indeed bitcoin’s recent calmness could be down to the fact that there are fewer coins to sell: the amount held on exchanges for trading stands at 1.97 million, Coinglass data shows, down steeply from 2.33 million at the start of the year.
Major offloading has already taken place; November saw a 7-day realized loss of $10.16 billion in bitcoin investments as investors were forced to exit long-term positions, the fourth-largest loss on record by this measure, according to Glassnode data.
The cryptocurrency has already dropped more than 60% in 2022 and set to see its first annual loss since 2018.
Many remaining investors are placing their bitcoin into offline “cold storage” according to on-chain data, which should strengthen a floor price around $16,000, said Bob Ras, co-founder of Sologenic, an exchange and digital asset firm.
“Barring any more surprises in the market, it’s hard to imagine BTC going significantly lower,” he added.
Ras believes that if it wasn’t for the high-profile collapse of crypto players FTX, Celsius and Terra this year, the price of bitcoin would be close to $25,000 now.
But this is crypto, and more surprises could well be in store, with a number of potential selling triggers on the horizon.
THE BEAR’S TALE
First potential peril is the risk of more bitcoin miners being forced to sell their holdings to stay afloat, as mining becomes increasingly expensive.
“Miners as a group start to become unprofitable under $20,000, so we’re below (that) point,” noted Ben McMillan, chief investment officer at IDX Digital Assets.
CrytpoQuant’s miner reserve indicator, which tracks the amount of bitcoin held in miners’ wallets, has dropped by about 7,722 bitcoin since November.
Market players also pointed to concerns about the Grayscale Bitcoin Trust, (GBTC.PK) the world’s largest bitcoin fund with $10.9 billion in assets. Parent company Digital Currency Group, which owns Genesis Trading, owes $575 million to Genesis’ crypto lending arm, DCG’s CEO told shareholders on Nov. 22.
Grayscale Bitcoin Trust’s discount to its net asset value, is at an all-time low of 48% and shares have not traded at a premium since March 2021, Coinglass data showed.
DCG last month said troubles at Genesis’ lending business had no impact on DCG and its subsidiaries, while Grayscale maintained it was business as usual and its underlying assets were unaffected.
“This could be the other shoe to drop,” said McMillan, referring to the possibility of Grayscale running into financial trouble. “That said, if bitcoin can hold the $15,000 line through the DCG workout, that would be a strong indicator going into 2023.
A more hawkish than expected Federal Reserve at its final meeting of the year on Wednesday could further erode risk appetite and bitcoin’s prospects, crypto watchers said.
Bitcoin has fallen 75% after hitting a record high of $69,000 in November 2021
GETTING TECHNICAL
The scenarios of bitcoin leaping to $30,000 or tumbling to $5,000 in 2023 were long-shot possibilities flagged by VanEck and Standard Chartered, respectively.
When it comes to the technicals, several analysts pointed to indicators showing bitcoin may have found support between $16,000 and $16,800.
The cryptocurrency could also run into resistance around the $17,490 level, said Eddie Tofpik, head of technical analysis at ADM Investor Services, cautioning that any long-term rally was likely to be challenging.
“Anytime we see a rally, it’s one step up and then two or three steps down,” he said.
Vetle Lunde, analyst at Arcane Research, said long-term bets could be appealing in the wake of the November turmoil.
Nonetheless, uncertainty reigns.
“Bear in mind that massive drawdowns tend to be followed by a long-lasting directionless market filled with apathy and unfathomable second-guessing,” Lunde added.
Reuters Graphics Reuters Graphics
Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Pravin Char
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Dec 7 (Reuters) – The Pentagon awarded $9 billion worth of cloud computing contracts to Alphabet Inc’s Google (GOOGL.O), Amazon Web Services Inc (AMZN.O), Microsoft Corp (MSFT.O) and Oracle Corp on Wednesday.
The Joint Warfighting Cloud Capability (JWCC) is the multi-cloud successor to the Joint Enterprise Defense Infrastructure (JEDI), which was an IT modernization project to build a large, common commercial cloud for the Department of Defense.
The separate contracts, which carry a notional top line of $9 billion, run until 2028 and will provide the Department of Defense with enterprise-wide, globally available cloud services across all security domains and classification levels, the contract announcement said.
U.S. flag hangs during a ceremony to honor victims of the September 11, 2001, attacks at the Pentagon in Washington, U.S., September 11, 2022. REUTERS/Cheriss May
U.S. Navy Commander Jessica McNulty, a Department of Defense spokesperson, said in a statement the JWCC was a multiple-award procurement composed of four contracts with a shared ceiling of $9 billion.
The move comes months after the Pentagon had delayed its decision to award an enterprise-wide JWCC contract.
The Pentagon attempted to move to the cloud several years ago using the JEDI concept, but the proposal died after litigation stopped the procurement process.
This deal could put the military more in line with private-sector companies, many of whom split up their cloud computing work among multiple vendors.
Reporting by Nathan Gomes in Bengaluru and Mike Stone in Washington D.C.; Editing by Stephen Coates and Gerry Doyle
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Nov 28 (Reuters) – Bitfront, a U.S. crypto exchange backed by Japanese social media firm Line Corp, said it has suspended new sign-ups and credit card payments and will cease operations in a few months despite efforts to overcome challenges in the rapidly evolving industry.
“However, despite our efforts … we have regretfully determined that we need to shut down BITFRONT in order to continue growing the LINE blockchain ecosystem and LINK token economy,” the California-based company said in a statement on its website on Sunday.
Bitfront said the move is unrelated to recent issues among certain crypto exchanges that have been accused of “misconduct”.
FTX, which was among the world’s largest cryptocurrency exchanges, is now the subject of investigations by authorities for “criminal misconduct”.
The company had filed for bankruptcy earlier this month, while cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection on Monday, hurt by exposure to the collapse of FTX.
Bitfront said it has suspended new sign-ups and credit card payments as of Nov. 28, and will suspend withdrawals on March 31, 2023. The company clarified that interest for deposits made between Dec. 5 and Dec. 11 will be paid out on Dec. 13, 2022.
Reporting by Rahat Sandhu and Maria Ponnezhath in Bengaluru; Editing by Sherry Jacob-Phillips
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NEW YORK, Nov 15 (Reuters) – Global banking giants are starting a 12-week digital dollar pilot with the Federal Reserve Bank of New York, the participants announced on Tuesday.
Citigroup Inc , HSBC Holdings Plc (HSBA.L), Mastercard Inc (MA.N) and Wells Fargo & Co (WFC.N) are among the financial companies participating in the experiment alongside the New York Fed’s innovation center, they said in a statement. The project, which is called the regulated liability network, will be conducted in a test environment and use simulated data, the New York Fed said.
The pilot will test how banks using digital dollar tokens in a common database can help speed up payments.
Earlier this month, Michelle Neal, head of the New York Fed’s market’s group, said it sees promise in using a central bank digital dollar to speed up settlement time in currency markets.
Reporting by Lananh Nguyen; Editing by Chizu Nomiyama
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Nov 10 (Reuters) – (This story contains language some readers may find offensive in paragraph 2)
On Tuesday morning, Sam Bankman-Fried, owner of cryptocurrency exchange FTX, caught his employees off-guard with a somber message.
“I’m sorry,” he told them. “I fucked up.”
The reason for the mea culpa: His announcement half an hour earlier that FTX’s arch-rival, Binance, planned to mount a shock takeover of its main trading platform to save it from a “liquidity crunch.” Binance founder Changpeng “CZ” Zhao, whom the billionaire had accused of sabotage, would now be his White Knight.
The seeds of FTX’s downfall were sown months earlier, stemming from mistakes Bankman-Fried made after he stepped in to save other crypto firms as the crypto market collapsed amid rising interest rates, according to interviews with several people close to Bankman-Fried and communications from both companies that have not been previously reported.
Some of those deals involving Bankman-Fried’s trading firm, Alameda Research, led to a series of losses that eventually became his undoing, according to three people familiar with the company’s operations.
The interviews and messages also shine new light on the bitter rivalry between the two billionaires, who in recent months competed for market share and publicly accused each other of seeking to hurt the one another’s businesses. It culminated on Wednesday, with Binance pulling out of its deal and throwing FTX’s future into uncertainty.
Stuck without a buyer, Bankman-Fried was now searching for alternative backers, two people close to him said. After Binance pulled out, he told FTX staff in a message that Binance had not previously told them of any reservations about the deal and he was “exploring all options.”
Neither Binance nor FTX responded to requests for comment. Bankman-Fried told Reuters on Tuesday that “I’ll probably be too swamped” to do interviews. He didn’t respond to further messages.
Binance earlier said it decided to pull out of the deal as a result of its due diligence on FTX and news reports about U.S. investigations into the company.
Zhao’s unveiling of the planned takeover capped a stunning reversal for Bankman-Fried. The 30-year-old had set up Bahamas-based FTX in 2019 and led it to become one of the largest exchanges, accumulating a near $17 billion fortune.
News of the liquidity crunch at FTX – valued in January at $32 billion with investors including SoftBank and BlackRock – sent reverberations through the crypto world.
The price of major coins plummeted, with bitcoin slumping to its lowest in almost two years, heaping further pain on a sector whose value has fallen about two-thirds this year as central banks tightened credit.
By ditching the deal, Binance had also avoided the regulatory scrutiny that would likely have accompanied the takeover, which Zhao had flagged as a likelihood in a memo to employees that he posted on Twitter.
Financial regulators around the world have issued warnings about Binance for operating without a license or violating money laundering laws. The U.S. Justice Department is investigating Binance for possible money laundering and criminal sanctions violations. Reuters reported last month that Binance had helped Iranian firms trade $8 billion since 2018 despite U.S. sanctions, part of a series of articles this year by the news agency on the exchange’s financial crime compliance.
RELATIONSHIP SOURS
Zhao and Bankman-Fried’s relationship began in 2019. Six months after FTX’s launch, Zhao bought 20% of the exchange for about $100 million, a person with direct knowledge of the deal said. At the time, Binance said the investment was “aimed to grow the crypto economy together.”
Within 18 months, however, their relationship had soured.
FTX had grown rapidly and Zhao now viewed it as a genuine competitor with global aspirations, former Binance employees said.
When FTX in May 2021 applied for a license in Gibraltar for a subsidiary, it had to submit information about its major shareholders, but Binance stonewalled FTX’s requests for help, according to messages and emails between the exchanges seen by Reuters.
Between May and July, FTX lawyers and advisors wrote to Binance at least 20 times for details on Zhao’s sources of wealth, banking relationships, and ownership of Binance, the messages show.
In June 2021, however, an FTX lawyer told Binance’s chief financial officer that Binance wasn’t “engaging with us properly” and they risked “severely disrupting an important project for us.” A Binance legal officer responded to FTX to say she was trying to get a response from Zhao’s personal assistant, but the requested information was “too general” and they may not provide everything.
By July of that year, Bankman-Fried had tired of waiting. He bought back Zhao’s stake in FTX for about $2 billion, the person with direct knowledge of the deal said. Two months later, with Binance no longer involved, Gibraltar’s regulator granted FTX a license.
That sum was paid to Binance, in part, in FTX’s own coin, FTT, Zhao said last Sunday – a holding he would later order Binance to sell, precipitating the crisis at FTX.
Reuters Graphics
“TRYING TO GO AFTER US”
This May and June, Bankman-Fried’s trading firm, Alameda Research, suffered a series of losses from deals, according to three people familiar with its operations. These included a $500-million loan agreement with failed crypto lender Voyager Digital, two of the people said. Voyager filed for bankruptcy protection the following month, with FTX’s U.S. arm paying $1.4 billion for its assets in a September auction. Reuters could not determine the full extent of losses Alameda suffered.
Seeking to prop up Alameda, which held almost $15 billion in assets, Bankman-Fried transferred at least $4 billion in FTX funds, secured by assets including FTT and shares in trading platform Robinhood Markets Inc, the people said. Alameda had disclosed a 7.6% share in Robinhood that May.
A portion of these FTX funds were customer deposits, two of the people said, though Reuters could not determine their value.
Bankman-Fried did not tell other FTX executives about the move to prop up Alameda, the people said, adding he was afraid that it could leak.
On Nov. 2, however, a report by news outlet CoinDesk detailed a leaked balance sheet that allegedly showed that much of Alameda’s $14.6 billion in assets were held in FTT. Alameda CEO Caroline Ellison tweeted that the balance sheet was merely for a “subset of our corporate entities,” with over $10 billion of assets not reflected. Ellison did not return requests for comment.
That failed to douse growing speculation over what Alameda’s financial health might mean for FTX.
Then Zhao said Binance would sell its entire share in the token, FTT, worth at least $580 million, “due to recent revelations that have come to light.” The token’s price collapsed 80% over the next two days and a torrent of outflows from the exchange gathered pace, blockchain data show.
WITHDRAWAL SURGE
In his message to staff this week, Bankman-Fried said the firm saw a “giant withdrawal surge” as users rushed to withdraw $6 billion in crypto tokens from FTX in just 72 hours. Daily withdrawals normally totaled tens of millions of dollars, Bankman-Fried told his employees.
After Zhao’s tweet that Binance would sell its FTT holding, Bankman-Fried projected confidence that FTX would weather its rival’s attacks. He told staff on Slack that withdrawals were “not shockingly, way up,” but they were able to process the requests.
“We’re chugging along,” he wrote. “Obviously, Binance is trying to go after us. So be it.”
But by Monday the situation became dire. Unable to quickly find a backer, or sell other illiquid assets short-notice, Bankman-Fried contacted Zhao, according to a person familiar with the call. Zhao later confirmed that Bankman-Fried had called him.
Bankman-Fried signed a non-binding letter of intent for Binance to buy FTX’s non-U.S. assets. This valued FTX at several billion dollars, two people familiar with the letter said – enough for the exchange to cover all withdrawal requests but a fraction of its January valuation.
Zhao announced the potential deal several hours later, with Bankman-Fried tweeting “a huge thank you to CZ.”
“Let’s live to fight another day,” Bankman-Fried told staff on Slack.
His employees were shocked. Even executives had been in the dark about the Alameda shortfall and takeover plan until Bankman-Fried informed them that morning, two people working with him said. Both people said they had been unaware that the withdrawal situation was so serious.
Then came Binance’s announcement on Wednesday scrapping the takeover. “The issues are beyond our control or ability to help,” Binance said. Zhao tweeted “Sad day. Tried,” with a crying emoji.
Reporting by Angus Berwick in New York and Tom Wilson in London; additional reporting by Hannah Lang in Washington and Elizabeth Howcroft in London; Editing by Paritosh Bansal and Chris Sanders
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