FTX’s collapse raises concerns for crypto-related stocks

Mark O'Donnellon 01/12/2022|
2 min read

Bahamas-based cryptocurrency exchange FTX’s filing of Chapter 11 bankruptcy on Nov. 11 have sent stocks of financial services companies dealing digital assets tumbling, further reducing the already dented confidence for the cryptocurrency industry.

According to Bloomberg News-compiled data, the implosion of FTX, which at its peak was the third-largest cryptocurrency exchange, and its spillover effects have wiped out nearly $5 billion in value across a range of other companies.  

FTX filed for bankruptcy less than 48 hours after a supposed rescue takeover from rival Binance. After news broke of the company’s collapse, Binance CEO Changpeng Zhao warned of the potential negative impacts of the event on the cryptocurrency industry, saying, “a lot of consumer confidence is shaken, and I think basically it sets us back a few years.”

Indeed, not long after the filing of bankruptcy, the event has taken a toll on the shares of financial services companies involved in the trading and management of digital assets.

The aftermath

Some of the apparent publicly-listed victims are Robinhood (NASDAQ: HOOD), MicroStrategy (NASDAQ: MSTR) and Galaxy Digital Holdings (TSX: GLXY), all of which have fallen at least 15% the week of FTX’s bankruptcy filing. Another company affected was Silvergate Capital Corporation (NYSE: SI), which posted a record decline after news broke of FTX’s collapse.

NASDAQ: HOOD 4H, with Bitcoin price compare indicator and NASDAQ: MSTR comparison

More than a week following the event, the price of Bitcoin dropped to $16,132, causing a decline in the stocks of Coinbase Global Inc. (NASDAQ: COIN) and other crypto-related listed companies.

Meanwhile, Cointelegraph’s tracking of companies up to Nov. 17 showed that the event also affected institutional trading firm Genesis, blockchain financial services company Galaxy Digital, venture capital company Sequoia Capital, hedge fund Galois Capital, crypto lending firm BlockFi, exchange Crypto.com, investment firm Pantera Capital and crypto lender Nexo.

On Nov. 29, BlockFi also filed for bankruptcy, citing significant exposure to FTX.

Tougher regulations to follow

“With FTX going down, we will see cascading effects. Especially for those close to the FTX ecosystem, they will be negatively affected,” warned Binance’s Zhao.

He said the industry will likely face more regulatory scrutiny focusing on capital requirements and handling of deposits, which he thinks is “probably a good thing, to be honest.”

In a research report, JPMorgan said the collapse of crypto exchange FTX and sister company Alameda Research would likely prompt the acceleration of crypto market regulatory initiatives already underway. JPMorgan expects the FTX bankruptcy to also elicit a greater sense of urgency for regulation in the US, which is something that may actually help crypto-related stocks avoid future FTX-like shocks.