Multiple Crypto Exchanges Are “Secretly Insolvent,” Warns SBF

FTX CEO Sam Bankman-Fried (SBF) recently shared his thoughts on the state of the crypto market, its trajectory, and the platforms and companies within it. He claimed that there are still many remaining “third-tier” crypto exchanges that are insolvent but yet to be exposed.

More Instability to Come?

During an interview published by Forbes on Tuesday, the CEO began by addressing some firms whose financial troubles are more public. Those include crypto broker Voyager Digital and lending platform BlockFi, both of which suffered immense financial contagion following Three Arrows Capital’s fallout.

Both BlockFi and Voyager received quick credit lifelines from SBF’s firms FTX and Alameda Ventures, respectively. The cumulative value of these loans was $750 million.

“You know, we’re willing to do a somewhat bad deal here if that’s what it takes to sort of stabilize things and protect customers,” said SBF on the deals, knowing there’s no guarantee he’ll get his money back.

For SBF, such injections were not merely altruistic but a measure to keep the crypto industry alive and contagion from spreading. The young billionaire claimed last week that it was the “duty” of him and other crypto leaders to support the crashing market – even if it meant losing money.

However, neither he nor Binance CEO Changpeng Zhao is naive about which firms deserve a bailout. “There are companies that are basically too far gone, and it’s not practical to backstop them,” said SBF.

Industry giants like FTX, Binance, Coinbase, and other major exchanges are not included in that group. Though many have been forced into mass layoffs during the bear market, their internal operations better resemble relatively stable online stock brokerages.

However, there are over 600 lesser-known exchanges in the US – many of which offer dangerously high leverage that’s likely to wipe out investors and themselves.

“There are some third-tier exchanges that are already secretly insolvent,” he said.

Watch Out for Miners

SBF is also keeping an eye on Bitcoin miners – whose revenues steeply declined following Bitcoin’s crash in early May. Last month, publicly-traded industry giants actually sold more Bitcoin than they generated, with an even bigger selloff expected in June.

Both hash rate and energy consumption from miners have fallen in response, making for a less secure Bitcoin network. The CEO believes companies that leveraged the Bitcoin on their balance sheets during the 2021 “digital gold rush” may be in extra trouble.

What SBF isn’t worried about, however, is Tether – the stablecoin giant that’s been plagued by FUD for years.

“I think that the really bearish views on Tether are wrong…I don’t think there is any evidence to support them,” he said.