In today's edition of YIYL, (You Invest, You Lose) we start to evaluate the hellscape that is FTX's balance sheet. SBF and his team of cronies have been kicked out, there's a new CEO at the helm and they've asked bitGo, the custodians of wrapped bitcoin and other exchanges funds to help audit the supply of assets they have on the books.
BitGo has been tasked with tracking down and locking up assets of the failed cryptocurrency exchange FTX Trading said it managed to recover $740 million in assets so far, a fraction of the potential billions of dollars likely missing from FTX's coffers.
We also need to remember that many of those assets are shitcoins and bitcoin and at current prices we don't know how much of that could make whole some of the 4 million customers FTX claim to have on the books.
The assets recovered by BitGo have been moved to "cold storage" in South Dakota, where BitGo provides what is known as "qualified custodian" services under South Dakotan state law.
Those funds are now part of the bankruptcy proceedings while the whole process will take time to unfold. There will be lawsuits, there will be claw backs, and there will be recoveries of funds on wallets that are tied to other FTX entities, and that kitty will all be used to hopefully repay customers partially.
A balance sheet backed by thin air
A sizable amount of FTX's liquidity and assets were FTT token, which market cap is now basically 0 falling from around 9.17 billion at its peak. That was all propped-up value helped by customer funds and the Alameda trading desk and wasn't real value that could be tapped into without crushing the market cap in the process.
Now that all that fake value has been removed from the balance sheet there are claims that FTX has up to an 8 billion dollar whole based on the liabilities they had to institutional and retail customers.
Quality of assets unknown
While reports say that there is 3 quarters of a billion dollars recovered we don't know what the quality of it is, it could be bitcoin, Ethereum, and stablecoins that have deeper liquid markets to unwind positions and pay back investors or it could be a bunch of solana, shiba inu and a bunch of other shitcoins that would take months, even years to unwind to be able to realise any value without tanking the market.
The failure of FTX makes all the other lenders and exchanges that blew up look mild by comparison and I am pretty sure that with all that value lost or locked up, we're bound to see more bodies come to the surface.
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