FTX has filed for bankruptcy in the United States, and the crypto exchange’s fall will likely have implications for a number of Canadian companies.
The company announced the filing Friday morning after a tumultuous week that started with FTX looking to sell to Binance amid a liquidity crisis. That deal quickly fell through, with Binance indicating discrepancies in FTX’s books and FTX mishandling customer funds. FTX had reportedly been using customer funds to back its own investment bets through its sister trading firm Alameda Research (founded by FTX CEO Sam Bankman-Fried).
“The crypto market can be unpredictable.”
In the announcement of its bankruptcy filing, FTX noted that the filing encompasses FTX, Alameda, and “approximately 130 additional affiliated companies.”
At the same time, the company announced that Bankman-Fried has been replaced as CEO by John J. Ray III.
The fast fall of FTX has been felt around the world, with Canadian organizations not immune to the fallout.
The Ontario Teachers Pension Plan’s (Ontario Teachers’) stake in FTX had come under fire this week. The group, on Thursday, disclosed its investments in FTX, noting it contributed a total of $95 million USD to FTX International and FTX US across two financing rounds in October 2021 and January of this year.
The initial investment of $75 million USD was into both FTX International and FTX US, which are separate entities. The follow-on of $20 million USD went specifically into FTX US.
Prior to the FTX fallout, Ontario Teachers’ had stood by its investment in recent months, calling it “probably the lowest risk profile you can have.”
FTX also has a number of other Canadian connections, including plans to purchase Calgary-based crypto exchange Bitvo, investments in a number of Canadian companies, as well as ties to others, like WonderFi.
In June, FTX entered a deal to acquire Bitvo to expand into Canada. The financial terms of the deal, which was set to close in the third quarter of this year, were not disclosed.
Bitvo CEO Pamela Draper told BetaKit that the deal has not closed and there has been no impact on Bitvo as a result. In a statement on LinkedIn, Bitvo noted that it “operates independently with no material exposure to FTX.”
An active investor with a venture capital arm, FTX had also invested in Canadian companies like LayerZero Labs and Delphia, and led a $13.1 million CAD Series A round of Burnaby startup Vybe Network in June.
In a statement to its investors, LayerZero noted it has bought FTX, FTX Ventures, and Alameda out of all their stakes in the startup and emphasized that it remains “extremely well capitalized.”
FTX also had ties to crypto exchange WonderFi through a number of channels. These include Alameda leading WonderFi’s $5.6 million USD funding round in August last year; WonderFi making its own $617,850 USD investment in FTX and another investment in the Incentive Ecosystem Foundation, which invests in Solana, a crypto asset heavily backed by Alameda that has lost half of its value in the past week.
WonderFi backer Kevin O’Leary also became a paid spokesperson for FTX in August of last year, and he holds equity in the crypto exchange.
Despite these connections, on Thursday, WonderFi worked to assure investors that it does not expect the fall of FTX to have a sizeable impact on its business. WonderFi stated that neither WonderFi nor any of its operating subsidiaries, including Bitbuy and Coinberry, have any exposure to the FTT token, FTX, or Alameda. WonderFi also noted that the amount it invested in FTX is not considered to be material, and represents less than 0.2 percent of its total assets.
WonderFi’s reassurances come as Canadian companies are receiving warnings from provincial and territorial regulators, according to The Globe and Mail, about exposure to FTX and its cryptocurrency FTT, and the need to alert clients. This follows the crash of FTX affecting the broader crypto market with the prices of Bitcoin and Ether falling to new lows.
Neo Exchange-listed Immutable Holdings, a blockchain holding company, released a public statement saying that it does not have exposure.
While fellow Neo Exchange-listed decentralized finance company Liquid Meta also released a statement, noting it has initiated a withdrawal request to FTX regarding $4.3 million that is held by the latter, as Liquid used FTX for a variety of services including the onboarding and offboarding of digital assets. FTX has halted all withdrawals at this time, noting on its website that it is unable to process them.
Crypto exchanges Netcoins and Coinsquare, which work closely with Canadian regulators, also looked to reassure consumer investors amid the turbulence in the trading market.
“The crypto market can be unpredictable, and, in light of recent news, we thought it was important to remind our customers about our high standards, robust protocols, and safeguards, which all serve to ensure your assets are protected,” Coinsquare tweeted.
Netcoins added that it “does not lend out any customer funds, and both fiat and crypto funds are properly protected as per regulations.”
Bitvo took a similar approach after noting that its acquisition by FTX has not closed, stating: “In light of recent events, we wanted to ensure our customers that your funds are secure with Bitvo and that trading operations as well as withdrawals and deposits have and will continue seamlessly.” The exchange also emphasized its compliance with Canadian regulations.
Jade Alberts, vice president of the Canadian Blockchain Consortium, called Canadian organizations like crypto exchanges “among the best in class globally.”
“They protect consumers, work alongside with regulators, and actively seek clear regulatory framework,” he told BetaKit, claiming that Canada is the toughest jurisdiction to enter but that in turn “minimizes risk of insolvent entities offering unregulated products to the market.”
“It is tough to garner support from the public when things like this happen,” he added.
Feature image courtesy Unsplash. Image by Mariia Shalabaieva