FTX Collapse: Billionaire Mike Novogratz Warns of More Failures

Michael Novogratz believes the cryptocurrency industry could see more collapses.

Billionaire Michael Novogratz, founder of Galaxy Digital Holdings, said the downfall of FTX and several major cryptocurrency companies could lead to more meltdowns.

The insolvency of FTX could result in more companies in the industry facing severe liquidity issues.

Crypto companies such as Genesis and BlockFi are facing their own crises.

Crypto exchange Genesis confirmed on Wednesday that it has stopped customers from making withdrawals and issuing new loans, the latest company to be severely impacted from the collapse of FTX.

Galaxy, a crypto financial services company, had disclosed a $76.8 million exposure to bankrupt FTX because it used the exchange to hold assets. 

The company said turmoil in the industry to continue in the weeks ahead.

Galaxy, which uses FTX to hold assets, had previously said $47.5  million worth of assets were in the withdrawal process when it discussed its third-quarter results.

Galaxy’s net comprehensive loss was $68.1 million, compared with a $517.9 million gain in the same period a year ago due mostly to unrealized losses on investments as valuations dropped.

“We are going to have to be nimble and agile for the next two to 12 weeks as this digests, and people really make sense of what happened,” Novogratz said during a conference call about the collapse of FTX.

He said that “within a quarter” crypto prices would not be impacted by the fallout of FTX and would be more correlated to macro market conditions. 

Shares of Galaxy Digital fell by 35.79% during the past month, but plummeted by 83.82% year-to-date.

Novogratz, a crypto evangelist and former Goldman Sachs banker, had previously humorously encouraged Anthony Pompliano, another crypto evangelist, not to lose faith.

“Cmon @APompliano, keep the faith !!😂”

Novogratz remains a proponent of crypto despite the crash of the Luna token and even showed his loyalty by tattooing the brand on his left arm.

He had recommended to investors that they maintain a diversified portfolio, take profits along the way, have a risk-management framework and understand that all investments happen in a macro framework.

Novogratz urged future investors to risk only what they could afford if they want to avoid financial train wrecks of this sort.

“It’s important that less experienced market participants only risk what they are comfortable losing. I’ve often said people should allocate 1%-5% of their assets to the space,” the billionaire said.

FTX Contagion Spreads

Insolvent cryptocurrency exchange FTX could have as many as 1 million investors who are seeking to recoup their losses.

The Bahamian-based brokerage filed for bankruptcy after facing massive liquidity issues when its acquirer, Binance, backed out of a merger.

The bankruptcy attorneys for FTX, Landis Rath & Cobb and Sullivan and Cromwell, said on Nov. 15 that the number of creditors could exceed 1 million, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

Several other crypto firms, including Celsius and Voyager Digital, also filed for bankruptcy in 2022 as they also faced liquidity issues and falling prices in bitcoin and other digital asset prices.

FTX was an exchange used by crypto investors that included retail and institutional traders such as several hedge funds. It was backed by numerous high profile venture capitalists such as SoftBank, Ontario Teachers’ Pension Plan, Sequoia Capital, Temasek, Sea Capital, IVP, ICONIQ Growth, Tiger Global, Ribbit Capital, Lightspeed Venture Partners, and funds and accounts managed by BlackRock.

The insolvency of FTX, which filed for Chapter 11 bankruptcy on Nov. 11, was the result of a liquidity shortfall when clients attempted to withdraw funds from the platform a few days ago. The liquidity shortfall appears to have been the result of FTX’s founder reportedly transferring $10 billion of customer funds from FTX to his cryptocurrency trading platform Alameda Research, according to Reuters, citing two sources that “held senior FTX positions until this week”.

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