Institutions Short Bitcoin as SBF ‘Deeply Sorry’ for FTX Collapse

by James · November 25, 2022

The monumental collapse of FTX will go down as one of the biggest corporate scandals of all time. But, at least Sam Bankman-Fried, or SBF, is sorry. On November 22, the disgraced founder of FTX wrote a letter to his former employees describing his role in the company’s bankruptcy. “I never thought this would happen,” he wrote. “I didn’t realize the full extent of the margin position, nor did I realize the extent of the risk a hypercorrelated crash poses.” Get this: SBF still believes the company can be saved because “there are billions of dollars of genuine interest from new investors.” Shouldn’t he be busy trying to avoid jail right now?

Bitcoin (BTC) and the broader crypto market have rallied in the wake of the scandal. While this has allowed many diamond supplied hodlers to accumulate more BTC on the cheap, institutional investors are using this opportunity to short the market. We may finally get the final capitulation to round out the current four-year cycle.

As always, this week’s Crypto Biz newsletter delivers all the latest high-profile business news from our industry.

Table of Contents

Sam Bankman-Fried says he is “deeply sorry” for the collapse in a letter to the FTX team

SBF’s letter to former FTX employees painted the picture of a deeply remorseful founder who managed to squander billions due to excessive margins and poor oversight. He also blamed the “run on the bank” for FTX’s eventual demise. For those of you keeping track, the bank run that SBF mentioned was sparked by Binance CEO Changpeng Zhao, who on November 6th revealed on Twitter – of all places – that he would be selling $500 million worth of FTX tokens. That announcement triggered a tidal wave of redemptions on FTX as users rushed to exit. Within 48 hours, FTX was shown to be insolvent.

FTX owes over $3 billion to its 50 largest creditors: Bankruptcy filing

The hole in FTX’s balance sheet is estimated to be worth around $8 billion – and a large part of it is due to just 50 people. New bankruptcy filings in the state of Delaware confirmed this week that FTX’s top 50 creditors are owed a combined $3.1 billion. One person owes more than $226 million, while the rest of the top 50 had between $21 and $203 million on the failed derivatives exchange. So when can FTX creditors expect to get some of their money back? That could take years or even decades, according to insolvency lawyer Stephen Earel.

FTX reveals that the top 50 creditors are owed $3.1 billion.

The largest creditor owes $226 million.

All names were removed. pic.twitter.com/JGeddvMB7w

— Tom Dunleavy (@dunleavy89) 20 November 2022

The FTX crisis leads to record inflows into short investment products

Believers in Bitcoin as a sound monetary alternative to the current monetary regime have used the recent market collapse to accumulate more BTC. But for some institutional investors, the FTX collapse has sparked a new shorting opportunity. According to CoinShares, 75% of institutional crypto investments last week went into short investment products. In other words, they are betting that Bitcoin and other cryptoassets will see a further price decline. BTC has already plunged to around $15,500, marking a new low for the cycle. Although Bitcoin may go much lower, we are nearing the end of the current four-year cycle. So the bottom may be close.

US senators urge Fidelity to reconsider its Bitcoin offerings after FTX explodes

Fidelity Investments, one of the earliest institutional backers of digital assets, is being strongly urged by members of Congress to limit its Bitcoin investment offering. This week, Senators Elizabeth Warren, Tina Smith and Richard Durbin again asked Fidelity to reconsider its Bitcoin 401(k) product offering in the wake of the FTX disaster. “Since our last letter [from July 26, 2022], the digital asset industry has only become more volatile, turbulent and chaotic – all features of an asset class that no plan sponsor or retirement saver would want to come close to,” the senators wrote. The crypto-skeptics may be taking their victory lap for now, but Bitcoin is getting the last laugh.

The implosion of FTX has made it clear that the digital asset industry is in serious trouble. I joined @SenWarren & @SenTinaSmith to urge Fidelity to do what is best and reconsider its decision to expose retirement accounts and employer-sponsored plans to these volatile assets. pic.twitter.com/qQn4PF80AP

— Senator Dick Durbin (@SenatorDurbin) 21 November 2022

Before You Go: Could Grayscale Trigger the Next Bitcoin Price Collapse?

Concerns surrounding Grayscale’s Bitcoin Investment Trust (GBTC) began to rise last week after the company refused to provide on-chain proof of its reserves. Now investors are concerned whether Grayscale’s parent company, Digital Currency Group (DCG), may be forced to liquidate a portion of its GBTC to cover a massive hold on Genesis Global Trading’s balance sheet. What is the relationship between DCG, GBTC and Genesis? In this week’s market report, Marcel Pechman and I discuss this relationship and why it matters to Bitcoin investors. You can watch the full replay below.