FTX and Alameda Research Questioned Amid Balance Sheet Controversy
It took just one weekend for Sam Bankman-Fried to pivot from powerhouse crypto broker to damage control manager. Today, the blockchain executive is dealing with the fallout of a report by CoinDesk. Apparently, his two companies — FTX and Alameda Research — are the subjects of a controversy regarding the latter’s balance sheets. Is Alameda Research the crypto tour de force investors thought it was? Or does it rely heavily on FTX Token (FTT-USD) to prop itself up?
Since launching in 2017, Bankman-Fried’s Alameda Research has been one of the most noteworthy crypto private equity firms in the United States. The company trades billions of dollars worth of cryptos and crypto derivatives each day. Until FTX and Alameda merged their venture capital (VC) operations in August, the company managed over $1 billion in client funds as well.
While the company’s VC investing has taken a backseat as a result of the ongoing crypto bear market, it is still deeply entrenched in investments on its own behalf. The company currently manages almost $15 billion worth of assets. However, Alameda is coming into increasing scrutiny over the last week. Indeed, the wealth of assets Alameda says it manages appears to be far less diverse than investors may have believed.
Specifically, a report by CoinDesk exploring the company’s balance sheet reveals that Alameda relies heavily on holdings of the FTX Token. More exactly, of the $14.6 billion in assets Alameda manages, almost $6 billion is FTT or FTT collateral. The CoinDesk report also notes a heavy exposure to Solana (SOL-USD) and Serum (SRM-USD) — the first of which Bankman-Fried was an early investor in and the latter of which he helped co-found.
Alameda Research Heavily Relying on FTX Token
The news surrounding Alameda Research and its previously shrouded asset holdings is troubling to investors. It’s not inherently a problem to hold a lot of a given token, but the circumstances surrounding Alameda’s relationship to FTX make holding FTT a complicated matter.
Indeed, Alameda and FTX are sibling companies. So, Alameda relying on FTT for a great deal of its total assets could be concerning. Typically, a company like Alameda would rely on another company’s assets or some sort of fiat not controlled by a close entity to the holder. This revelation paints the two companies as unusually close to one another.
As a result of this news, FTX is seeing a rush of FTT liquidations from its platform. Investors have also been gossiping over weather FTX was insolvent in the wake of the Alameda Research news. This has also led to Bankman-Fried dispelling rumors of financial instability at the exchange company.
1) A competitor is trying to go after us with false rumors.
FTX is fine. Assets are fine.
— SBF (@SBF_FTX) November 7, 2022
It’s worth noting that, through all of the rumors, FTX has been one of few crypto companies amid the bear market to be making aggressive business moves to expand its model. The company has bailed out several crypto companies, including its notable acquisition agreement inked with BlockFi for up to $240 million. In October, the company also won an auction for bankrupt crypto lender Voyager Digital’s remaining assets. The $1.42 billion sale is still waiting on final approval before processing.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.