Investors in BlackRock’s and other firms’ crypto products saw values plunge on 9 November as the embattled digital assets industry reeled afresh from a crisis engulfing crypto giant FTX.
BlackRock’s iShares Blockchain and Tech exchange-traded fund, which it launched earlier this year, was down 7.3% on 9 November for the 24 hours previous, according to its website. VanEck’s bitcoin strategy ETF was down 13% for the same period on 10 November.
For Grayscale, a crypto asset manager, shares in its bitcoin trust relative to the value of the underlying asset held in the fund plummeted to a record 40.9% on 9 November, according to YCharts data.
CoinShares, Europe’s largest crypto asset manager, said on 10 November that despite having withdrawn funds in the last week, its exposure to FTX exchange was still more than one-tenth of the firm’s net asset value, at £26m. Its ETP, which tracks the price of FTX’s token FTT is down about 90% since 6 November.
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Crypto markets have taken a battering in recent days. Bitcoin fell to $16,287 on 10 November, down 75% since the start of the year after a run on FTX exchange in recent days blew a massive hole in its balance sheet, throwing serious doubt over the company’s survival prospects.
FTX’s boss Sam Bankman-Fried initially agreed to sell the business to rival crypto exchange Binance on 8 November, as customers rushed to withdraw funds from his trading platform following reports that it faced trouble from losses at a related trading firm, Alameda.
But Binance, the world’s largest crypto exchange, said on 9 November that it is pulling out of the deal. “In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.
BlackRock, VanEck, WisdomTree, Grayscale, 21Shares and others offer investment products tracking listed crypto companies or markets.
BlackRock, VanEck and Grayscale did not immediately respond to requests for comment.
Usman Ahmad, chief executive of Standard Chartered’s crypto firm Zodia Markets, told Financial News: “It’s hard to believe it has unravelled so quickly, particularly considering the amount of money Sam Bankman-Fried had raised through FTX.”
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As in the crisis caused by the collapse of stablecoin terraUSD and its paired cryptocurrency Luna earlier this year, crypto firms have rushed to limit exposure. Galaxy Digital, the crypto asset manager run by Michael Novogratz, said it has exposure of around $76.8m of cash and digital assets tied to FTX, but that it was in the process of withdrawing nearly two-thirds of that figure earlier in the week.
Sequoia writes down $150m FTX investment to zero
In the venture capital space, Softbank, BlackRock and Sequoia Capital are among the firms expected to write off their exposure to FTX amid the crisis. In a 10 November letter to shareholders, Sequoia said it had marked down its $150m investment in the embattled crypto firm to zero.
“We are in the business of taking risk,” wrote the private equity giant. “Some investments will surprise to the upside, and some will surprise to the downside.”
Other global giants which bet big on FTX in recent years include Ontario Teachers’ Pension Plan, Tiger Global Management, Ribbit Capital, Temasek and Lightspeed Venture Partners.
Millennium Management founder Izzy Englander, Brevan Howard Asset Management’s Alan Howard and the family office of billionaire Paul Tudor Jones were all angel investors in the company.
Other investors include Insight Venture Management, NEA Management, Paradigm Medical Industries, Coinbase Ventures, Institutional Venture Partners and Lux Capital Group.
Hedge fund Third Point and tech-focused private-equity firm Thoma Bravo also put money in during a $900m fundraise in 2021.
Anatoly Crachilov, chief executive of crypto hedge fund Nickel Asset Management, told FN the industry’s credibility has been “severely damaged” by events and that the industry would suffer a “loss of trust” as a result.
READGoldman sees clients boomerang in ‘flight to quality’ as crisis engulfs crypto firms
“Given that the first cautious attempts to enter crypto by top-tier global allocators, such as Ontario Teachers in the FTX case, ended in full write-offs, one would safely expect this to throw cold water on any immediate interests to crypto and will create a setback to further allocations to this the sector for a while.
“Whenever one takes significant responsibility and then burns this responsibility — the remaining players have to clean the mess… The crypto industry will need to work twice as hard to rebuild bridges with the institutional world.”
Crypto ‘still has some growing up to do’
Investment banks like Goldman Sachs, JPMorgan and Nomura have made concerted pushes into the digital assets space in the last year, while BlackRock and Fidelity have led the charge from the asset management side.
On 10 November, Moody’s warned traditional finance companies against overexposing themselves to the sector.
“Crypto losses so far by retail and digital asset institutional participants have largely remained contained within the crypto sphere, a credit positive for banks and evidence of banks’ fairly cautious approach to crypto in light of the uncertain regulatory environment,” said Fadi Massih, vice president of Moody’s Investors Service’s Financial Institutions Group.
“However, should leverage again build substantially in the crypto finance system, it could unsettle the banking system, even if banks continue distancing themselves from direct interaction with the crypto economy.”
Meanwhile, regulators in the US and the UK, which have already taken a hard line on crypto, are likely to be emboldened by the events. The Wall Street Journal reported that the Securities and Exchange Commission and Justice Department are investigating FTX following its sudden implosion.
Charley Cooper, a former chief operating officer at the US Commodities Futures Trading Commission, told FN: “This is a big black eye for the industry and a blow to thousands of people and companies who entrusted their money to FTX.”
He added: “For years, critics have alleged that crypto is dangerous and doesn’t play by any rules, and that view appears to have been validated.”
Oliver Linch, chief executive of crypto exchange Bittrex told FN the implosion of FTX showed that the industry “still has some growing up to do”.
Many firms will be “directly affected” by the crisis, he added. “On a personal level, it’s just heartbreaking to see people being put in this position.”
He said it was “critical” in the coming weeks to work out “exactly what happened, why it happened, and how we can make sure it doesn’t happen again”.
To contact the author of this story with feedback or news, email Alex Daniel