Market Update 14/11/2022 — The Fall of FTX and Twitter
In just 8 days, the legendary name behind FTX, Sam Bankman-Fried went from the ‘King of Crypto’ to filling FTX for bankruptcy and as a result, stepping down as chief executive while facing a federal investigation on his credibility for how he handled FTX’s finances. Over the years, FTX had become the world’s second-largest crypto titan after Binance, seeing a $10-$15 B daily transaction.
According to a blog post from venture capital giant Sequoia Capital, Mr. Bankman-Fried played an intense League of Legends battle during a high-level video call with their investment team.
On Tuesday, November 8 – FTX halted all cryptocurrency users’ withdrawals. Bankman-Fried posted a string of Twitter threads explaining the FTX’s liquidity issues and promising more transparency before the freeze.
On Thursday, November 10, Sam Bankman-Fried posted a 22-tweet-long thread addressing the issue further as the dark situation continues. He started the tweet with
In that thread, he explained his initial view, leverage, and the situation for both FTX US and FTX International. He also mentioned, “So, right now, we’re spending the week doing everything we can to raise liquidity”.
On the other hand, FTX.US posted a warning on its website for users on the log-in screen, “may be halted” in a few days after the parent company spiraled toward collapse this week from a liquidity crisis. The message reminded users to close any positions they wanted to and that withdrawals would remain open.
On Friday- November 11, FTX’s US branch filed for Chapter 11 bankruptcy. The filed triggered its bell call after exchanges crashed along with continuous liquidity concerns and allegations of misused funds, followed by a large volume of withdrawals from rattled investors. The platform traders rushed to withdraw $6B in just a span of 72 hours.
A pinch of alcohol to the fire after Binance withdrew from their rescue deal to buy over FTX. Bankman-Fried later step down from his position and on Friday night, approximately $663 million in crypto mysteriously flowed out of wallets linked to FTX.
Sequoia Capital marked the value of its FTX stake down to $0. FTX was said to be short between $8-$10 B, and FTX was incapable to meet customers’ withdrawal demands.
“I don’t think it’s an understatement to predict that the FTX bankruptcy will be the most complex in U.S. history,” Caitlin Long, founder, and CEO of Custodia Bank told Yahoo Finance Live.
The value of FTX’s native token, FTT, plummeted, taking other coins with it, including Ethereum and Bitcoin, which reached a two-year low as of Wednesday afternoon.
Ryan Miller, the general counsel of FTX extended the voice of John Ray, Chief Restructuring Officer and the new CEO of FTX — “FTX US and FTX.com will continue to make every effort to secure all assets, wherever located”.
He also tweeted last November 12 – FTX will continue to initiate all possible precautionary steps to move all digital assets to cold storage. It is to ensure mitigating any damage upon observing unauthorized transactions.
What does this mean for the U.S. crypto market?
FTX’s crash has had a profound effect on the crypto market-
Bitcoin’s price dipped to $15,883 on Wednesday and continues to trade below $16500 as it closed at $16,353 on Sunday.
Ethereum dipped below $1,100 on Wednesday and only play around $1100-1250 max till the end of the week.
Solana dipped below $13 on Wednesday after CoinDesk’s report that Alameda Research (The company founded by Bankman-Fried) held a large amount of it. The cryptocurrency closed its week at $13.16.
FTT, FTX’s native token fell from its opening price on Tuesday of $22.14 to close at $5.52. It dipped below $2.5 on Wednesday and continues slipping. The token closed at $1.49 on Sunday.
Impact to other crypto platforms.
“FTX going down is not good for anyone in the industry. Do not view it as a win for us. User confidence is severely shaken,” wrote Changpeng Zhao, Binance’s CEO.
BlockFi – Crypto lender BlockFi has also gone silent since officially announcing a freeze on customer withdrawals on Thursday night. Even though BlockFi isn’t included in the FTX Chapter 11 filing, the firm is expected to be a major creditor after it took an emergency $400 million line of credit from FTX in late June. Quite a number of users experience the unavailability of BlockFi credit card usage.
Amanda Research- The crypto trading firm was founded by Bankman-Fried; The company was reported by CoinDesk with a troubled balance sheet on November 2. Its largest assets, according to the report, FTT worth billions of dollars.
Robinhood- The company has no direct exposure to Alameda, FTX or any of its entities. Plus, FTT can’t be traded on the platform. However, FTX’s Bankman-Fried has a 7.6% stake in Robinhood.
The verge of Twitter Bankruptcy.
Last Friday, November 11- Elon Musk fired 3700 of Twitter’s staff. However, you can’t just lay off half of the staff of a cloud-based social network with 450 million monthly active users and expect things to keep running smoothly. It just doesn’t make any sense.
It is the notion rule after you lay off a certain % of people; you get an additional half attrition. Lay off 50%, you should bear to expect another 25% to quit. With the fear of being the next in line for the layoff, fear of the future, and many more. It is not a surprise if, by the end of the month, Twitter has to encounter a 70% of staff loss.
Musk warns of Twitter bankruptcy as executives quit.
According to a report from Bloomberg, Musk told his employees that he could not rule out bankruptcy even though it had been only two weeks after he bought the social media company for $44B (€43.2B).
“Sorry that this is my first email to the whole company, but there is no way to sugarcoat the message. Without significant subscription revenue, there is a good chance Twitter will not survive the upcoming economic downturn,” Musk said.
Elon Musk further highlighted to Twitter’s employees that Twitter currently facing a daily loss of almost $4M. Twitter’s current $13B debt incurs interest of $1.2B which is projected for payment in the next 12 months. According to its financial document as of June 30, Twitter’s cash flow stands at just $1.1B which means, the current debt is even higher than Twitter’s cash flow.
What's been happening on Twitter?
<Read Elon Musk, Twitter’s New Owner. Finally! on AxeHedge>
As soon as Elon takes over the company, he exercises his ownership with brutal efficiency by firing top executives. He starts his way by firing Twitter Chief Executive Parag Agrawal, Chief Financial Officer Ned Segal, and legal affairs and policy chief Vijaya Gadde. Twitter continues losing its key player as the company’s chief information security officer, Chief Privacy Officer, and Chief Compliance Officer all recently resigned. And two other high-profile executives, Head of the Trust and Safety Yoel Roth and VP of Client Solutions Robin Wheeler, also resigned on Thursday. According to an update by Bloomberg, Elon Musk managed to convince Wheeler to stay.
Twitter’s main source of income— Advertising! After the news outbreak of Elon Musk’s taking over, some Twitter advertisers pull off Twitter ads. This drains the company’s revenue stream. To combat this issue, the add-on of $8 subscription for the coveted blue tick, along with a new grey official badge for high-profile accounts didn’t solve the problem.
“The reason we’re going hardcore on subscribers is to keep Twitter alive,” said Elon Musk.
The impact of Elon Musk’s Buy-Out Decision
Elon Musk, who is also the main man of Tesla and Space X had spent most of his time restructuring the social media company where it could be better spent on Tesla, which is expected to report vehicle deliveries in early January.
Bottom Line - The Disappointing Year of Tech Stocks.
This year continues to be another slump for tech companies. The Q3 earnings were reported weak by most companies including Alphabet, Microsoft, Meta, and Amazon. The earning could be recorded “as one of Big Tech’s worst” wrote Wedbush Securities analyst Dan Ives in a recent research note. The recession seems to knock on the door and hit one tech company after another. Thus, tech companies should quickly adjust their game.
Apple which had lost 17.75% YTD managed to lift up its stock by more than 7% in a span of a month. Analysts say Apple is in better shape than its Big Tech peers since the demand for its products remains high around the world. Even with the increase, it is still down almost ⅕ since the beginning of the year.
Meta slide off by -66.62% since the beginning of the year. Unlike Apple, Meta fell 10.84% in a duration of a month. Joining them, Amazon dropped -40.85% since early of the year, Alphabet slide off -33.32% and Microsoft dropped -26.18% since the start of 2022.
Microsoft sees green in his chart with 8.12% of a month span while Alphabet maintains red all over the 6 months.
It is still too soon to state the recovery of tech stocks with a few stocks increasing when most mainly solely due to new product launches.
The key-takeaways/market update is a new series by AxeHedge, which serves as an initiative to bring compact and informative In/Visible Talks recaps/takeaways on leading brands and investment events happening around the globe.
Do keep an eye out for our posts by subscribing to our channel and social media.
None of the material above or on our website is to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument. Investors should carefully consider if the security and/or product is suitable for them in view of their entire investment portfolio. All investing involves risks, including the possible loss of money invested, and past performance does not guarantee future performance.