Changpeng Zhao warns investors that the rapid collapse of FTX is not the last for the digital currency market.
Known as CZ because of his huge influence in the crypto sphere, the billionaire is in charge of Binance, the company he co-founded, which is the largest cryptocurrency and digital asset exchange in the world in terms of trading volumes.
When its main rival, FTX, was in trouble and faced serious problems liquidity problems, Zhao stepped in briefly and offered to save the crypto brokerage by acquiring it.
But less than a day later, after Zhao conducted initial due diligence on FTX, which is run by Sam Bankman-Fried, which was valued at $15.6 billion as of Nov. 7, according to Bloomberg Billionaires Indexthe transaction was cancelled.
FTX’s quick demise led to the company filing for Chapter 11 bankruptcy on November 11, and Bankman-Fried, the institutional face of the crypto space who owns FTX and trading platform Alameda Research, resigned as CEO.
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Zhao warned that the $1 trillion cryptocurrency market is facing a crisis not unlike the 2008 financial crisis that crashed investment bank the giants Lehman Brothers and Bear Stearns.
FTX’s collapse is the first of many, and more crypto companies could follow a similar fate, he said.
“With FTX falling, we will see cascading effects,” Zhao said at a conference in Indonesia. “Especially for those close to the FTX ecosystem, they will be negatively affected.”
News of the failure of other crypto companies will emerge soon, he said.
“Several other projects will be in similar situations. I think it will take a few weeks for most of them to come out,” Zhao said.
Comparing FTX’s failure to the global financial crisis is a “probably accurate analogy” of the company’s downfall.
Neither Binance nor FTX are public, so their true valuation is difficult to determine. But the valuation of BNB, the native token of the Binance ecosystem, gives an estimate of Binance’s potential valuation. BNB currently has a market cap of $46 billion, according to the data firm CoinGecko.
Both BNB and Bitcoin saw their valuations plummet by 20%, while ethereum fell further to 22.5% due to the FTX crash.
Zhao also does not believe that FTX can acquire the assets of Voyager, a crypto lender that is also insolvent. The $1.4 billion deal closed in September and FTX “obviously … won’t have the money.”
Voyager suspended the deal on November 11 and said it had restarted the bidding process and was “in active discussions with alternative bidders”. The bankrupt lender has $3 million currently locked in FTX, “essentially consisting of locked LUNA2 and locked SRM.”
Genesis, another major crypto trading firm, has had its say derivatives business had $175 million locked up on the FTX exchange, but that the money was “not material to our business” and would not affect its market-making or trading functions.
FTX’s liquidity crisis was caused by massive customer withdrawals on November 6 after Binance announced its decision to sell $500 million worth of FTT, the cryptocurrency issued by FTX following press reports about the group’s financial condition.
But Zhao said the industry will recover at some point, saying “the market will heal itself,” Zhao said.