Crypto firm Multicoin says fallout from infection from FTX will continue

The FTX logo displayed on a phone screen and representing the cryptocurrency bitcoin is seen in this illustration photo taken in Krakow, Poland on November 14, 2022.

Jacob Borzycki | Norphoto | Getty Images

Crypto investment firm Multicoin Capital told investors in a letter Thursday that the collapse of FTX and price declines across the industry have pushed the fund down 55% this month, adding that the market is about to get worse before it rebounds.

Multicoin said there is a chance the company will recover some of its FTX funds, but since those assets are now closed in bankruptcy proceedings, they expect to cut it down to zero. It’s a stark reversal for five-year-old Multicoin, which announced a $430 million fund in July, its third and largest fund to date.

“We have placed a very large amount of confidence in our relationship with FTX,” Multicoin managing partners Kyle Samani and Tushar Jain wrote in the 3,400-plus-word letter, which was obtained by CNBC. “We had a lot of assets on FTX.”

In a letter last week, the company said it managed to recover about a quarter of its assets from FTX, but the money still stuck there represents 15.6% of the fund’s assets. Multicoin also said at the time that it traded on three exchanges: FTX, Coinbase, and Binance. Now, 100% of its “out of capital stuck in FTX” assets is in the works Coinbase or in “multi-signature” self-holding, which means that many different signatories are needed to control the funds.

“Currently, the fund has no assets exposed to any other counterparties,” said Multicoin. “Going forward, we expect some diversification in custodian exposure — with Coinbase expected to remain our primary custodian — and will resume trading with counterparties as we continue to assess the current market ramifications.”

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John Robert Read, a spokesperson for Multicoin, declined to comment for this story.

Multicoin said it does not expect the crypto market to turn around anytime soon. That’s because there were more crashes to come from the sudden failure of FTX and its sister hedge fund Alameda Research, which were both owned by Sam Bankman-Fried. Both entities entered bankruptcy proceedings on Friday.

“We expect to see infection ramifications from FTX/Alameda over the next few weeks,” the letter read. “Many trading companies will be eliminated and closed down, which will put pressure on liquidity and scale throughout the cryptocurrency ecosystem. We have already seen many announcements on this front, but we expect to see more.”

Multicoin added that as other companies with FTX-linked assets seek emergency fundraising, we are “looking to purchase the splintered assets at attractive valuations.”

Multicoin took another big hit with the failure of FTX due to its huge position in the Solana token. Bankman-Fried was Solana’s biggest supporter, and Alameda was a major coin holder. This link has resulted in a 64% drop in value Solana in the last 12 days.

Multicoin said it holds its ground and continues to believe in Solana, in part because the cryptocurrency has “one of the most vibrant developer communities.” The cryptocurrency market has gone through several downturns in the past few years and is bouncing back again.

“Based on our experience in 2018 and 2020, we know that it is not wise to sell an asset during a short-lived crisis if the underlying premise is not disrupted,” the company said.

Multicoin concluded by saying that just as Lehman Brothers didn’t kill the banking business and Enron wasn’t the death of energy companies, FTX will not be the end of the cryptocurrency industry.

“With leverage removed from the system, we expect to see green shoots next year,” the letter read. “We know that the builders in this industry and in our portfolio are some of the most dedicated people and they won’t give up. And neither will we.”

Watch: Binance decided that FTX was beyond saving

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