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FTX investors fear for their money as crypto firm files for bankruptcy

At the end of a crisis-filled week, the crypto exchange’s many stakeholders wonder if they’ll see their cash again

Facing a liquidity crisis, paused withdrawals this week, leaving many customers and investors fearful of whether they'll see their money again. (Leon Neal/Getty Images)
8 min

Since 1990, the Ontario Teachers’ Pension Plan has managed hundreds of billions of dollars in assets for nearly 200,000 education workers, holding stakes in traditional investments from airports to shopping centers.

But on Thursday the Canadian pension fund warned in a statement it had suffered a hit from a more alternative gamble: The fund had sunk as much as $75 million into FTX International, the troubled global cryptocurrency exchange, in a financing round last year.

The Canadian pension fund is just one of many entities affected by the unraveling of FTX and Sam Bankman-Fried, its onetime highflying chief executive, who in just a few chaotic days has seen his fortunes dramatically turn.

On Friday, FTX announced that it would file for bankruptcy and that Bankman-Fried is resigning as CEO after the company couldn’t find enough capital to stay afloat. The move affects some 130 FTX-related companies, including large global crypto exchange — the bulk of FTX customers are overseas — and FTX.US. The small American-centric firm has long been considered separate but is now suffering the same fate as the flagship. The company has appointed John J. Ray III, who helped oversee Enron’s unwinding, to lead FTX’s parent company.

Everyday investors, along with celebrity endorsers, venture-capital firms and others are all facing deep uncertainty in the aftermath.

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“This could be a very significant event for a lot of investors, especially retail investors,” said Chester Spatt, a former chief economist of the Securities and Exchange Commission and professor of finance at Carnegie Mellon University, noting the struggle many customers would face to get their money out in a bankruptcy.

Recent crypto history is not encouraging for consumers. In June, embattled digital bank Celsius Network froze customer withdrawals, leaving scores of depositors without access to their accounts. The company would file for bankruptcy a month later, and many users still can’t access their funds.

Bankman-Fried offered little information on when or if FTX customers will find relief, saying only that “I’m going to work on giving clarity on where things are in terms of user recovery ASAP,” in a tweet thread.

He also said that he was “really sorry, again, that we ended up here” and that “Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to them. Ultimately hopefully it can be better for customers.” Many Twitter users replied with sharp skepticism.

The bankruptcy filing concludes a startling turn of events for one of the crypto world’s most influential personalities. On Tuesday, Bankman-Fried shocked the tech and finance realms when he said that he was selling his company to Binance, another exchange and his biggest rival. Two days earlier, Binance CEO Changpeng Zhao had precipitated what was essentially a bank run on FTX when he tweeted critically about the company’s cryptocurrency token.

On Wednesday, however, the deal fell apart as Binance said that FTX’s financial issues “are beyond our control or ability to help” amid questions of whether Bankman-Fried had been transferring FTX customer funds to Alameda Research, his trading firm. A crypto exchange is a platform where consumers can easily buy or sell cryptocurrencies. Unlike a crypto lender, which invests a consumer’s deposits in the manner of a bank, an exchange is supposed to function merely as a conduit without touching consumers’ funds.

A spokesman for FTX, Peter Padovano, said the company had no comment on the events of the past few days. A message to Bankman-Fried was not returned. A Binance spokeswoman did not elaborate beyond Wednesday’s statement from Zhao.

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Meanwhile users frantically — and unsuccessfully — sought to get their money out of the exchange as paused most withdrawals.

A Washington Post analysis of blockchain data provided by Dune Analytics, an independent research firm, showed that withdrawals from declined precipitously starting Tuesday. Wednesday’s and Thursday’s totals were about 5 percent of withdrawals on a typical day before the crisis. And on Friday the number dwindled to about half that, the Dune data showed.

Twitter is now filled with customers sharing tales and screenshots of their inaccessible funds.

A user named William Martinez said a $31,000 deposit was stuck on FTX after he transferred it from a digital wallet. “Please help me bring them back,” he tweeted to the wallet’s operator.

Other FTX customers also worried about funds in limbo. “Life savings are stuck on FTX, man help us for the love of god,” one customer tweeted at Zhao.

In a message to The Post, the FTX customer, who only gave his first name, Mustapha, because he is worried about scammers, said he has been trying to withdraw money since Tuesday but the request remains pending. “No idea if I will ever see my hard earned money again,” wrote Mustapha, who said he lives in Morocco.

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Bankman-Fried spent the past few days trying to raise money to avoid filing for bankruptcy, but the bid failed. The Wall Street Journal reported that Bankman-Fried had told investors he would need as much as $8 billion to become liquid.

Founded in 2019, FTX grew quickly amid the pandemic-driven boom for crypto in 2020 and 2021, reaching a $32 billion valuation earlier this year. The company also attracted $1.8 billion in financing and at one point had as many as 1 million customers, it said.

One of those financiers, venture firm Sequoia Capital, has already marked down its $210 million investment to zero dollars, it said this week in a letter to limited partners.

The news could even affect the pocketbooks of Tom Brady and Gisele Bündchen, who appeared in ads for the platform and were given stakes in the company, an FTX release said at the time.

Meanwhile one professional sports franchise already broke ties with the company. Late Friday, Miami-Dade County and the Miami Heat said they were terminating the naming-rights deal immediately for the club’s FTX Arena and would be seeking a new partner.

“The reports about FTX and its affiliates are extremely disappointing,” the county and team said in a statement. The parties were in the second year of a 19-year deal with the crypto company that was paying out a total of $135 million to them in installments.

Other venture-capital firms that invested in FTX — including Paradigm, BlackRock, Tiger Global and Insight Partners — could also see their investments shrivel up. So could the Ontario pension fund, one of Canada’s largest.

“TVG’s investments are structured to provide Ontario teachers with returns commensurate with the risk undertaken,” the fund said in a statement, noting that some of the $75 million went to FTX.US, along with an additional $20 million. “Naturally, not all of the investments in this early-stage asset class perform to expectations.” It said the money represents “less than 0.05% of our total net assets.”

FTX’s crisis is already causing ripple effects for customers of another crypto firm. BlockFi, a digital-asset lender that FTX had bailed out with a $400 million loan in June, said on Thursday that because of FTX’s liquidity problems, it had to pause withdrawals too.

Spatt, the former SEC economist, compared the FTX disaster to the explosive MF Global scandal of more than a decade ago, in which the now-defunct commodities broker was accused of improperly transferring customer funds. But Spatt notes that instance involved “a much smaller amount.”

For now, at least, other parts of the crypto world have not suffered major trauma. After dropping 16 percent in the days after Tuesday morning’s news, bellwether bitcoin rebounded with a 5 percent climb Thursday as bargain hunters poured in. The currency was down 4 percent Friday in the wake of the bankruptcy news.

As late as Thursday, Bankman-Fried had tried desperately to offer some hope to customers. The company, he tweeted, was making a deal with Tron, a Singapore-based crypto network run by entrepreneur Justin Sun. The pair said that Tron would provide FTX a loan for an undisclosed amount that would allow the exchange’s users to redeem their money for several kinds of proprietary tokens on his platform.

“TRON Ark building is well underway, the modern time crypto voyage for FTX users to weather the crypto storm,” Sun tweeted over a cartoon image of animals being sheltered in Noah’s ark. “Stay safe and dry.”

But many people weren’t buying the idea that another unstable cryptocurrency would provide safe harbor. “Pirate of the Caribbean,” one user replied.

Jeremy B. Merrill contributed to this report.