Sequoia Capital has marked down its investment in the embattled crypto exchange FTX to zero, according to a note shared by the firm with its limited partners (LPs) on Thursday.
“Sequoia Capital’s exposure to FTX is limited. We own FTX.com and FTX US in one private fund, Global Growth Fund III. Our $150 million cost basis accounts for less than 3% of the committed capital of thee fund,” the venture capital firm said in the note. The $150 million loss is offset by the roughly $7.5 billion realised and unrealised gains of the same fund, Sequoia added.
Sequoia’s note is the latest development in a saga of events at the embattled crypto bourse.
Speculation about FTX‘s financial health had started over the weekend and snowballed into $6 billion of withdrawals in the 72 hours before Tuesday morning, Reuters reported.
Meanwhile, a non-binding agreement between FTX chief executive officer Sam Bankman-Fried and rival Binance chief executive officer Changpeng Zhao was called off by the latter in the early hours of Thursday. The emergency rescue by Binance to cover FTX’s “liquidity crunch” was subject to due diligence.
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance tweeted on Thursday.
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
“There seems to be a large risk of insolvency concerning FTX,” Vetle Lunde, a senior analyst at Norway-based crypto research firm Arcane research had told Dealstreetasia in an email interview earlier. “A chapter 11 is far from unlikely,” he added.
In October 2021, a slew of notable investors including Sequoia Capital, Singapore state investor Temasek, Sea Capital, and Tiger Global had injected a total of $420.69 million in the Series B1 round of FTX, bringing the firm’s valuation to $25 billion.
That came shortly after a $900 million Series B funding round last July, which witnessed the participation of over 60 investors.
Temasek told the Strait Times on Thursday that the firm is engaging with FTX in its capacity as a shareholder, adding that it is aware of the development between FTX and Binance, but it would not be appropriate to comment further.
“Behind the headlines, retail investors and institutions suffered massive losses. It will for sure have a long-lasting negative impact on the market,” Lunde commented in a blogpost published on Arcane Research’s website on Wednesday.
“The FTX situation is extremely bearish, will impact the regulatory outlook, dampen institutional presence and likely keep us at painful lows for at least 6-12 months. Hindsight is 20/20 – but I did not see this coming. 2022 has been an awful year on multiple accounts, and we’ve watched it all gradually deteriorate and melt down in front of our eyes,” he added.
Crypto currencies have been mired in trouble this year as investors pulled out of riskier assets as central banks hiked interest rates.