Sam Bankman-Fried, the CEO of imploding cryptocurrency firm FTX, celebrated the firm’s ability to “stretch itself” in a July conversation with Telstra Ventures general partner Yash Patel.
But FTX now appears to have stretched itself past breaking point — and Telstra Ventures will likely be one of the biggest Australian victims of its collapse, having funded the exchange as part of a recent US$350 million investment round.
FTX has filed for bankruptcy in the United States and called in the administrators for its Australian operations after revelations about the company’s financial position last week led to a full-blown liquidity crisis.
The Wall Street Journal reports FTX lent US$10 billion in customer funds to its sister company, the trading firm Alameda Research, for a series of highly speculative investments.
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And as investors with cryptocurrency still on the FTX platform attempted to extricate their stranded tokens, a new crisis hit the firm over the weekend in the form of a suspected hack thought to have siphoned at least US$1 billion of client funds from the platform.
The Australian Securities and Investments Commission is now understood to have contacted FTX’s Australian wing about its obligations through the crisis.
While Australian retail investors hope for the return of their holdings, institutional investor Telstra Ventures faces a significant hit to its balance sheet through FTX’s collapse.
The Australian-born, San Francisco-based firm invested in FTX as part of its third fund, which closed in September.
Before the collapse, Bankman-Fried and Telstra Ventures enjoyed a friendly public relationship, with the founder appearing with general partner Yash Patel for a series of conversations published online in June.
In one, Bankman-Fried said FTX was perpetually focused on adding new features, including a proposal for cryptocurrency derivatives trading.
“There’s a tonne going on,” he told Patel.
“And we always try and push it to the point where we can really feel that pressure of there being a lot going on, as a way to know we are stretching ourselves, and we’re doing everything we can here.”
In another telling moment, Bankman-Fried mused on the potential future price of assets like Bitcoin.
“Obviously anything can happen,” he said. “I’m just sort of making this up, as are we all.”
Patel further touted Bankman-Fried’s credentials in July, when FTX bailed out flailing trading platform BlockFi.
“SBF is seen as a big figure in this space and so injecting confidence with consumers, ensuring they have confidence their wallets, you know, are still able to be withdrawn in terms of their crypto assets, that’s important,” he told CNBC.
But Patel added that it was unlikely stability in the crypto realm will come from one individual.
“I don’t think it’s one man or one company that is going to save this whole ecosystem from any potential systemic issues,” he said.
The Australian Financial Review states Telstra Ventures has not detailed how much of that US$350 million fund was deployed at FTX.
It is understood to be less than the amount provided by Sequoia Capital — which spectacularly wrote its entire US$150 million investment in FTX down to $0.