Crypto billionaires with US$96b loss add distance from FTX

AS Sam Bankman-Fried’s crypto empire imploded last week, costing him effectively all of his US$15.6 billion fortune, other digital-asset billionaires sought to make clear that their steep losses in 2022 wouldn’t be similarly fatal.

Cameron Winklevoss, 41, who along with his twin brother Tyler founded cryptocurrency exchange Gemini, posted an 11-part series of tweets emphasising that Gemini “has no exposure to FTT tokens or Alameda and no material exposure to FTX,” referring to Bankman-Fried’s trading house and crypto exchange.

Brian Armstrong, 39, chief executive officer of Coinbase Global, reshared a Washington Post article from 2018 that described the publicly traded US company as “one of trust and legitimacy, in contrast to what it says are ‘fly-by-night’ exchanges that freely operate in a legal gray zone in other parts of the world.” Bankman-Fried’s FTX.com is based in the Bahamas.

And Changpeng “CZ” Zhao, the Binance billionaire who traded barbs with Bankman-Fried, then extended him a takeover offer only to revoke it, posted a checklist of what to avoid in crypto within two hours of FTX filing for bankruptcy. A few days later, he said his firm planned to launch a crypto recovery fund to help industry players facing a liquidity crunch. 

“The real ripple effect of this is: People stop trusting other people, so people pull liquidity off of exchanges,” Michael Novogratz, the billionaire founder of Galaxy Digital Holdings, said in a telephone interview. His firm started taking down its exposure to FTX in the weekend before the bankruptcy warnings, though was still stuck with US$77 million of exposure to the exchange, or 4 per cent of Galaxy’s capital.

In the interview, hours after FTX filed for bankruptcy, Novogratz, 57, said it could take weeks before “war stories show up,” given how many firms were linked to the exchange. He said the six-month period after Lehman Brothers failed, which kept stocks under pressure, could be used as a parallel to how markets may react to the FTX bankruptcy.

“I’m not saying that analogue will hold, but it will take a while,” he said.

As the crypto world grapples with the fallout from the demise of one of its most recognisable advocates, much is at stake for the industry’s other titans, whose wealth skyrocketed in 2020 and 2021 as individuals and institutions alike ploughed into digital assets. Zhao, 45, debuted on the Bloomberg Billionaires Index of the world’s richest people in January with a US$96 billion fortune, putting him in the same stratosphere as the founders of Google and former leaders of Microsoft.

It’s been a much different story in 2022, with prices of Bitcoin and Ether down 64 per cent and 66 per cent, respectively, and amid spectacular blowups including the algorithmic stablecoin TerraUSD, hedge fund Three Arrows Capital and lender Celsius. FTX’s collapse has fuelled a spike in outflows across global crypto exchanges, with users pulling a net US$3.7 billion worth of Bitcoin and US$2.5 billion of Ether in the seven days through Sunday.

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The chaos around FTX’s liquidity crunch and eventual bankruptcy has brought the collective loss of the richest crypto billionaires this year to more than US$96 billion, not including Bankman-Fried’s wipeout, according to the Bloomberg wealth index. The contagion in crypto could keep prices of tokens – and the wealth of Zhao, Armstrong, the Winklevoss twins and others – depressed for some time.

“Right now, the tide is going out,” said Mike McGlone, analyst at Bloomberg Intelligence, who expects the price of Bitcoin could go as low as US$10,000. He expects a recovery at some point, but “who knows when?”

For now, Zhao’s estimated net worth is US$16.9 billion after a US$78.9 billion decline this year that’s third only to Meta Platforms’ Mark Zuckerberg and Tesla’s Elon Musk.

The Winklevoss twins, meanwhile, have seen almost half of their wealth erased and are now worth US$3 billion each. The fortunes of Coinbase’s Armstrong and fellow co-founder Fred Ehrsam, 34, have tumbled 78 per cent and 43 per cent, respectively.

As for Novogratz, he’s lost 64 per cent of his net worth this year and is now down to US$1.8 billion, according to the Bloomberg wealth index. BLOOMBERG