FTX Bankruptcy Fallout Continues to Cause Crypto Chaos

eleven bankruptcy following several days of enormous turmoil. The latest reporting from Reuters says SPF is seeking a nine point four billion dollar package for an f t X bailout. It started way back when last week when a tweet finance CEO Chang pangs Al said that his crypto exchange planned to sell ft x's native token f t t due to risk management issues that ended up driving the

token's price down by some ninety percent. And soon after f t x as CEO Sam Bankman Freed started shopping around for a bailout and halted withdrawals on his platform. We also just thirty six hours later, got news that f t X ended up filing for bankruptcy and that SPF was resigning. Here with us today to go over everything that happened is Bloomberg reporter Katie Greifeld. Katie, thank you so much for joining me today. So, Katie, obviously

this has been incredibly hard on so many people. So we have institutions that have been involved with this that are hurting. We also have a ton of retail investors who are who have lost a lot of money. So maybe just to start tell us what the hell happened? You know, it's a great question, but I think you make a great point that that's what's at stake when you think about this. Whole conversation is centered around customer funds. What happened to the customer funds where they mishandled. Those

are people's investments, that's people's money. So again, I think that's an important jumping off point that that's what we're really talking about at the end of the day, just exactly we're going to lose money in terms of what the hell happened. I think we're still facing that together.

But it seemed like it started as a big Twitter feud basically between c Z at Finance and SPF at fd X, and it quickly turned into I think even people in the know would tell you that they were shocked at how quickly this moved, that they didn't even know f t X was on sale, let alone that Finance would buy it. And then almost as quickly as Binance had said that they were going to basically buy FTX to help with their liquidity issue getting back to

the customer funds, they pulled out. And then I mean all they deal exactly, and all of this was happening in the span of a few days, and by the end of the week, ft X had filed for Chapter eleven bankruptcy. And now it just feels like we're watching

for the fallout. Where do we go from here? And even in that very quick timeline that I just laid out, there's so many details and happenings that, uh, it just felt like a house of cards when it all came down at once, basically, and just for me in talking to people, and for you as well, because you and

I have covered f t X in the past. Over the last couple of years, we've been writing quite a bit about it and obviously about the crypto space, but this really had been the gold start within crypto, right. People thought of it as a very reputable place and people a lot of people thought very highly of SPF, of same Maignement Freed, and so possibly that's also one of the reasons that this has just been so much more shocking for a lot of people, right. I think

that's exactly right. I mean, if you think back to what happened a few months ago with Do Kwan and Terra and Luna, for example, I mean there had been do Kwant skeptics out there, it was still shocking the scale in the magnitude, but you could go back in the timeline, go back to Twitter and find people sort of ringing the alarm bells for months as to this looks unsustainable f t X, totally different situation. Like you said,

SPF was really really trusted. I mean, the man was testifying in front of Congress, mazines exactly on the cover of magazines. And I think that's the common denominator now when I talked to people, it's it's it's shocked, but it's also it feels like people are just stunned, and it feels like the magnitude of you know, how far f t X is reached is much larger. It feels like everyone had exposure to f t X some how, or to Alameda somehow, because again we're talking about an

entire empire here. That SPF was running a huge empire. You know that the FTX was not only one of the biggest crypto exchanges, it was also seeking to bail out other struggling crypto firms across the industry, while Sam making Freed was actively trying to change policies in the United States. Actually, in their bankruptcy filing on Friday, something like a hundred and thirty subsidiaries or companies that are tied to the ft X empire are also named in

the bankruptcy filing. But Katie, were still obviously sifting through the rubble. We might be for years to come, depending on what happens in terms of the bankruptcy and what regulators do. But Bloomberg did report over the weekend about just what a mess the books actually were at f t X. Maybe you can talk about that. Yeah, you read this story and you, I don't know, kind of get a clearer picture of why finance pulled out because uh a, look at a breakdown of the balance sheet again.

The day before that, they that f t X, ultimately filed for bankruptcy, had nine billion dollars in liabilities nine hundred million dollars in liquid assets. So that's a pretty big mismatch five point five billion dollars in quote less liquid assets and three point two billion dollars in a liquid assets. This is, of course, according to sources familiar

with the matter. Um the st has been all over this story too, and they broke the news that the largest asset was two point two billion dollars worth of a cryptocurrency called serum filled Donna. I had never heard of serum before I read that story. I had, but only because I used so many face serums, so the name had really like caught my eye, that is so funny. I had not my skin was serums. Yeah, my skincare routine is not as rigorous. So this was total news

to me. But what it's just, I mean, what do you even say? It's shocking speechless, which is bad for a podcast, bad talking, But it's gonna make for really really interesting core case. I think, yes, bankruptcy core case. But just to go back to your point about what happened over the summer with the Tera Luna implosion, just to catch up listeners. That was a stable coin, an algorithmic stable coin that lost its peg basically and wiped out.

I think it was something like sixty billion dollars in value. And I know, for me, having covered crypto for almost five years now, every time something does implode or something negative happens, when I talk to people, what they tend to tell me is, well, you know, whether it's some sort of some form of regulation. What they tell me is the regulation is good, we need regulation, or some price crash they say it's fine, we're taking some froth out of the market, or I mean, it doesn't matter.

There's always some sort of positive spin where you can argue, well, it's taking out weaker players, etcetera, etcetera. This time around, I feel like the commentary, at least from people I talked to, has been much more serious, almost like gravely serious, where people are telling me that they're scared of everything that's going on. I don't know what conversations have been like for your what the Maybe you can give us

a sentiment check. Yeah, I would agree with that. I mean it seems like the consensus is that this should accelerate. I mean, the US has been all over the place on crypto regulation. It's still unclear which of the letters, meaning the CFTC, the SEC who actually act has any oversight over the industry. And I mean Congress too has made noises about you know, we're looking at this, we're taking this seriously. I don't know the consensus at this point.

And again, the industry, it just feels like everyone is very shell shocked at this moment. But the consensus seems to be surely this accelerates regulation in some way. What that looks like, I'm not sure, but it remains to be seen. Well, we tend to hear the word regulation thrown out, thrown around a lot, but yeah, we'll see

what actually happens. Whereas we have people on one end saying maybe we'll see more regulation of these centralized exchanges, and on the other hand saying, you know, it could be much more widespread than that. Joe Wisenthal actually hit a great point newsletter. He made the point that crypto regulation it's a bit of an oxymoron. We've heard that phrase before, that regulation crypto oxymoron. But he made the point that if you think about the blockchains, they are

the law. The consensus mechanism is the law of that blockchain and how the coins move around, and you compare that to actual fiat currency. They are creatures of the government of that law. So if you regulate crypto, you have two competing laws there. So again there's a lot of this is a meta conversation. I know, there's a lot of philosophical questions about can you even regulate crypto? So, just to go back to your point about the terror, unplotion,

et cetera. You have actually written about this, How does this compare to past implosions? And I think actually in your story you may some comparisons even to what happened with Enron back in two Yeah, yeah, no, it it's important context to put this in past blow ups that we've seen over the past few decades. I mean a lot of people have compared this to a Lehman moment. I think it was Larry Summers, the former Treasury secretary,

who said, no, this is more like Endron. But if you again, if you look at all these big scandals, they have the same basic ingredients. You have a lot of easy money coming from the governments, from the central banks. You have really hyped innovation, uh, and you tend to have some central characters. And that's what's going on here.

And it's just not to blame everything on the Federal Reserve, which is really easy to do, but think about how aggressively the cycle has changed since this time last year. I mean, the FETE is on its biggest rate hiking, most aggressive rate hiking cycle that we've seen in decades. There's a lot of liquidity coming out of the system. I mean, lines go up in a bowl market. One of my favorite lines in that story was that a bowl market basically covers a lot of sins. And now

you're seeing the flip side of that. The cycle is turning and the bad actors are getting exposed. Bad actors being used very broadly here. Obviously there's a lot of investigations going on which will hopefully bear fruit. But the point being that once you do have the shift in the macroeconomic backdrop, the lines stopped going up and it gets a lot harder. So should we be blaming the FED or crypt people blaming the Fed? I think crypto people don't really know who to blame at this point.

I mean again, to compare it to what we saw with Tera, you had a lot of you know, people feeling vindicated, saying like I called this, you know, like the red flags were there, you just weren't looking closely enough. It feels like what's happening with f t X. It's just a very existential moment for the entire crypto industry because again you think about spfs reached the reach of the f t X empire. It had its tentacles in

virtually every corner of the market. Coming up more with Katie and me on the future of digital assets after one of the toughest weeks in crypto, we'll be right back. Well, even if you didn't know what f t X was, you likely saw their logo or their branding because they what they did over the last two years during the pandemic is they did a huge sports push, right Larry David was in their s David was in their Super Bowl ads, so was Tom Brady, and so was Gasel

his his now ex wife. Can I talk to you about something, Yeah, we talked about it. I got another ten years left. Not that this is big, you know. So they had celebrities going out during their advertising. They had their name on some on a sports arena, I believe the one where the Miami Heat place. They also had branding on umpire jerseys. It was everywhere. It was everywhere. So for for the average person, it's very likely that they were at least aware of the company. If not, Yeah,

I had money, and that was all by design. I mean, that was f t X wanting to be the face of crypto and it worked. I mean, I don't know what your personal conversations or your weekend looked like. This was all I talked about. Against my will, I would actually will to take a break, but it's all anyone wants to talk about. It is. It's shocking. It's mainstream shocking.

One one reason it's been so shocking is because crypto prices have sold off precipitously in the wake of this, Right, So maybe we can we can talk and about this a bit more and how it's also impacting retail investors who might not have had money on ft X, but

they've they owned cryptocurrencies in some other way. And what we saw is the ft t token, which is the utility token from f t X, dropped something like and then you had this huge sell off in bitcoin and ether, and then some of the sort of like f t X adjacent tokens like Salona Salona token. Really it's selling off precipitously. Yeah, I don't know. I want to turn this question. Do you actually Bitcoin obviously has sold off a bunch. It's down well over sixty two, just as

tremendous draw down. And again you think about all the retail players who were piling in this time last year. It's a very painful story. But at the same time, I'm kind of surprised that Bitcoin isn't even lower. Like I made this point in this little email distribution list I sent out on which you would you refuse to

add me too. By the way, it's just so listeners are aware, I've never seen this, But I made the point that if you had told me that f t X would file for bankruptcy, I would not have believed you. Like if you had told me a week or two ago that it would come in the next five days, I would be like, Okay, cool dream. And then if you had told me that bitcoin would still be above ten thousand dollars after that happened, I'd be like, no

way on earth this is a systemic player. So Bitcoin has dropped a lot, and its dropped off a lot of this news, but not as much as maybe I

would have expected. Maybe I'm naive there, but it seems like there is some resilience to some Yeah, so it's scary for people who are in the market, who are very closely paying attention to the market and to the charts, to see it dropped below certain key levels like the low reached earlier this year, which we broke through, and then even the round numbers like seventeen thousand per coin, we broke through that. Then at one point we broke

through sixteen thousand. So the cell of has been you know, it was over twenty at one point during last week when everything was unfolding and happening. But we've had huge sell offs in some other ones, I mean just huge, you know, more more than some of these alternative or all coins. So I think a lot of the selling also was happening there, and I think it makes the point that bitcoin and the Bitcoin blockchain, like they really are the o G s, you know, that is the

safe haven asset of the cryptocurrency safe haven. But obviously you've still lost a lot of money, but you've lost less money than if you were in Salana, for example, which was very very hyped as the Ethereum killer Ethereum being the second biggest blockchain, but again thinking about just second biggest token exactly, you think about the vast reach of SPF, of fd X, of Alameda. They were such huge advocates of Salona, such big backers that that token

has taken the brunt of the selling here. Yeah, for sure. So maybe just to wrap things up, we can talk a little bit about some of the outstanding questions. What are people telling you they'd like to be here about. I've heard it seems like everyone would like to know the fallout, like where to look for the next shoe to drop, And there's a lot of potentials I've heard to take a look at the lenders, for example, because again Alameda SPFS Trading Arm was a big borrower, so

I think that will be important. Block five, for example, has you know, halted withdrawals. I believe there's a few other lenders out there, and the lending the crypto lendic space was already shaky after what happened with Terra and then the summer three hours Capital, so there's that. I mean, it's been interesting. We heard from Galaxy, for example, they had exposure in the tens of millions. I think that is going to be sort of the drip feed of information to watch is who else is exactly how how

how widespread is the fallout? But again, I've been asking people exactly that question, what is the next shoe to drop? And it's a long list. I'm sure by the time this podcast runs will actually have so much more information because the news, the headlines, they've just been coming out incessantly. It's like a five or ten year cycle compressed into three days. Yeah. Well, Katie, it's been a joy as always to talk to you, so thank you so much for letting me chat with you today. Let's do it

again soon. I hope we can do it tomorrow again, beautiful. You can find more of our reporting on the Bloomberg Terminal and on Bloomberg dot com, and for more, be sure to check out our twice weekly newsletter, Bloomberg Crypto. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever

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