In a recent interview, FTX CEO Sam Bankman-Fried cautioned people that some smaller crypto exchanges have gone “secretly bankrupt”, and more are on the verge of failure.
In a conversation with Forbes, Bankman-Fried cautioned that aggressive investing at a time of crypto growth over the past two years has sparked a series of disasters following the collapse in prices.
That’s not all; The second reason could also be due to many minor firms providing double digit payouts that will not continue after the fall in crypto prices.
It goes without saying that smaller exchanges, which provide returns higher than their financial position allows, are likely to fail.
Bankman-Fried’s comments come after the founder provided credit facilities to two troubled companies, Voyager Digital and BlockFi. Celsius, on the other hand, has abandoned this credit line and is now insolvent.
Trading firms like Three Arrows Capital are already going bankrupt due to high risk investments that have collapsed due to the current crisis.
Factors driving the continued decline of the market
The market’s prolonged bankruptcy risks result from three major factors:
- Terra Fall in May
- De-pegging of Lido Stacked Ethereum
- Fears of increasing inflationary pressure
However, with the intensity with which the market has collapsed, Bankman-Fried admitted that his latest bailouts through FTX and Almeida could be a “terrible proposition.” Still, it may be enough to maintain stability and protect customers.
Still, charity is not the primary motivation for the FTX CEO. According to sources, FTX is looking to buy equity holdings in Voyager and BlockFi in exchange for lines of credit.
Since many other smaller players will probably go bankrupt, FTX may pick them up as well. Although its competitors such as Coinbase have reported significant losses in 2022, Bankman-Fried told Forbes that their exchange platform remains profitable.
Tether (USD) to avoid bearish market
Tether (USDT), the stablecoin, is one such investment that the CEO of FTX believes will survive the cryptocurrency winter. However, speculation on USDT holdings has dominated the market lately, despite the stablecoin remaining relatively stable.
According to Bankman-Fried, the pessimistic opinion on USDT is “wrong” and has no proof. Furthermore, Tether CTO Paolo Ardoino said that the stablecoin is well positioned to withstand further volatility in the market.
However, the larger crypto space is in for further suffering, as the issues contributing to its current decline remain unresolved.