The liquidity crisis on the cryptocurrency trading platform FTX.com continues to escalate in the cryptocurrency market. On November 10, Sequoia Capital shared a note about FTX sent to Global Growth Fund III on Twitter.

“Based on our current understanding, we are downgrading our investment to $0,” the Silicon Valley-based firm said. said Wednesday.

The statement says that the liquidity crisis created solvency risks for FTX. The full nature and extent of this risk are not yet known.

Sequoia said the company is still trying to reassure investors that it has limited exposure to FTX.

Sequoia Capital emphasized that even among the fund with the most exposure to FTX called GGFIII, which has investments in FTX.com and FTX.US, it is not in the top ten of the fund, and the $150 million cost basis alone represents that the fund has less than 3% of the committed capital. Losses of $150 million were offset by realized and unrealized gains of $7.5 billion, so the fund held up well.

The SCGE Fund invested a total of $63.5 million in FTX.com and FTX.US, representing less than 1% of the SCGE Fund’s portfolio as of September 30, 2022 at fair value.

Sequoia told investors it spent about $213.5 million on FTX’s US and international operations last year.

“We’re in a risk-taking business,” Sequoia Capital said. “Some investments will surprise you and others will disappoint you.”

Furthermore, he stated that by choosing to invest in FTX, he performed strict due diligence on the matter. In 2021, when he invested, FTX generated about $1 billion in revenue and more than $250 million in operating income.

However, the rapid change in the cryptocurrency market was unexpected for the company, but fortunately, FTX is not among the top ten positions of the fund.

The company said it will contact investors in a timely manner if there is any further news.

The reason why Sequoia Capital directly opted to write off may partly explain that the company has lost confidence in FTX and believes that there is no other clear way to recover its investment in FTX.

Other companies, including black rockTiger Global, SoftBank Group and the Ontario Teachers’ Pension Fund, which is among the top five pension funds in Canada, are all on FTX’s client list and may also suffer losses this time.

According to Bloomberg, FTX may face a funding gap of up to $8 billion, and without an injection of cash, the company will need to file for bankruptcy.

Binance has announced on Twitter that it “will not be pursuing the potential acquisition of FTX”, among other reasons, due to FTX’s mishandling of customer funds.

Image Source: Shutterstock