Following the FTX’s Demise, Investors Have Taken a Step Back

• Following the FTX crash, its major investors dropped their investments in the exchange.
•  FTX recently filed for bankruptcy amid facing an $8 billion liquidity shortage.

The collapse of one of the leading crypto exchanges, FTX, is the current trending news in the global cryptocurrency market. On Friday, FTX filed for bankruptcy amid facing an $8 billion liquidity shortage and a lack of resources. Reportedly, Sam Bankman-Fried, the CEO of the exchange platform has also stepped down from the position.

Currently, the Justice Department and the Securities and Exchange Commission are investigating whether FTX inappropriately utilized the customer’s fund to support Alameda Research, a separate trading firm created by SBF. 

FTX’s Collapse & Investor’s Allegations

The sudden collision of FTX has created a massive shock for several investors. The exchange’s prominent investors include NEA, IVP, Iconiq Capital, Third Point Ventures, Tiger Global, Altimeter Capital Management, Lux Capital, Mayfield, Insight Partners, Sequoia Capital, SoftBank, and Lightspeed Venture Partners.

The demise of FTX has resulted in a struggling condition for its investors too. According to New York Times, the exchange’s four investors claimed that it has thoroughly investigated the FTX’s financials, which showed that the platform is a successful and growing corporation, and offered a simple service for users to buy, sell, and trade cryptocurrencies. Additionally, the investors also disclosed that they were completely unaware of FTX’s possible self-dealing with Alameda  Research. 

In a letter sent to its investors on Wednesday, Paradigm, a crypto-based venture fund that invested $278 million in FTX, stated that the investment was likely worthless. Following this, Sequoia Capital said that its $213 million investment in the exchange was valued at $0. Also, The Ontario Teachers’ Pension Plan’s venture capital arm, which invested $95 million in FTX, stated in a statement, “Not all of the investments in this early-stage asset class perform to expectations.”

However, FTX’s investors were not prepared to identify or fix major flaws in the financial model.