FTX CEO Sam Bankman-Fried warned in a recent interview that several small crypto exchanges are already “secretly insolvent,” and that many more are set to fail.
Speaking to Forbes, Bankman-Fried warned that reckless investing during the crypto rally over the past two years could result in a string of failures after prices crashed.
This was also due to several small players offering double digit yields, which could not be sustained once crypto prices began to fall.
Other smaller exchanges, which were offering yields far beyond their capital levels, are also likely to fold.
There are companies that are basically too far gone and it’s not practical to backstop them.
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-Bankman-Fried told Forbes
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Bankman-Fried’s comments also come as the founder offered credit lines to two distressed firms- Voyager Digital and BlockFi. Crypto lender Celsius, however, appears to have missed a credit line, as it too faces insolvency.
Trading houses such as Three Arrows Capital are now facing bankruptcy after executing high-risk trades that failed due to the recent crash.
FTX CEO uncertain over returns from bailouts
The ongoing insolvency threats in the market stem from three main factors- the Terra crash in May, the de-pegging of Lido Staked Ethereum, and concerns over rising inflation and interest rates.
But considering the extent to which markets have unwound, Bankman-Fried acknowledged that his recent bailouts- through FTX and Alameda- may be a “bad deal,” but enough to maintain stability and protect customers.
Still, altruism isn’t the FTX CEO’s only motive. Reports suggest that FTX is considering taking equity stakes in both Voyager and BlockFi for the credit lines.
With more smaller players likely set for insolvency, FTX could snap them up as well. Bankman-Fried assured Forbes that the exchange is still profitable, despite its peers, such as Coinbase, logging massive losses this year.
Bankman-Fried says Tether FUD unfounded
One asset that the FTX CEO said would weather the coming crypto storm is the stablecoin Tether (USDT). Uncertainty over USDT’s reserves has pervaded the market over the past few months, although the stablecoin has remained largely static.
Bankman-Fried said bearish views on USDT are “wrong,” and lacking in evidence. Recently, Tether CTO Paolo Ardoino said that the stablecoin remains comfortably positioned to take on any more market stress.
Still, the broader crypto market is set for more pain, given that the factors that caused its recent downfall are far from alleviated.
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