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Multicoin Expects FTX Contagion To Hold Industry In Its Grips For Weeks To Come

In a letter to its investors, one of the industry’s most notable crypto venture firms, Multcoin Capital, has revealed its thesis for the coming weeks.

Managing partners Kyle Samani and Tushar Jain write in a 3,400-word letter that the FTX fiasco does not spell doom for the crypto industry, as critics like Peter Schiff and Nassim Taleb recently did.

“Just as Lehman Brothers didn’t kill banking and Enron wasn’t the death of energy companies, FTX won’t be the end of the crypto industry,” the venture capital firm said.

At the same time, the firm warns its investors that FTX’s collapse will cause more fallouts. Samani and Tushar wrote:

We expect to see contagion fallout from FTX/Alameda over the next few weeks.

Many trading firms will be wiped out and shut down, which will put pressure on liquidity and volume throughout the crypto ecosystem. We have seen several announcements already on this front, but expect to see more.

According to Multicoin, leverage must first be removed from the system before there will be “green shoots next year.”

Multicoin Trusted FTX

Samani’s company also acknowledged its own mistakes, though. Thus, it had placed “too much trust” in FTX. As a result, Multicoin lost 15.6% of its total fund assets on FTX.

The venture firm was only able to recover about a quarter of its funds that were deposited on the exchange. Although waiting to see how the bankruptcy proceedings progress, the company expects to write down its investment in FTX to zero.

In doing so, Multicoin follows the fate of other investors in FTX, such as Temasek, Sequoia Capital and Softbank.

Due to the loss of confidence, Multicoin said it is only trading on two other exchanges, Coinbase and Binance. For now, however, the company only relies on Coinbase custody and self-managed cold wallets, it said.

The Future Of Solana (SOL)

By its own account, Multicoin has invested a large amount in Solana (SOL). The token was one of the biggest sufferers in the FTX collapse, as SOL was one of FTX’s largest positions along with FTT.

On November 05, SOL was still trading at a price of $38.71 on Binance before the steep crash to currently $13.53 took place.

SOL USD 2022-11-18

SOL saw an unprecedented drop following the first FTX rumors. Source: TradingView

Despite the heavy losses, Multicoin officially still believes in Solana’s long-term potential, according to its letter to investors. The venture firm said it’s holding its position and still expects a bright future for Solana, because the cryptocurrency has “one of the most vibrant developer communities.”

Based on our experience in 2018 and 2020, we learned that it’s not prudent to sell an asset during a short-lived crisis if the core thesis is not impaired,” the letter states.

However, there is a juicy (unconfirmed) rumor circulating that Samani and Jain handled his personal funds differently. Allegedly, the general partners sold their personal SOL stashes near the top.

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Alameda-Backed Tokens Suffer As FTT Fights To Stay Alive

In the wake of the FTX decline, the official token of the crypto exchange, FTT Token, has suffered a massive blow in the market. In the three days since Binance’s announced its intention to sell off its FTT, the token has recorded double-digit losses. However, the losses have not just been localized to one token, the general crypto market has suffered for it, but the worst of it has been reserved for the tokens Alameda Research has invested in.

FTT Token Slumps

In what has been a shocking development for the entire crypto space at large, FTT Token has crashed more than 80% in a matter of days. The token which was backed by the 2nd largest crypto exchange has continued to suffer significant setbacks.

In just the last 24 hours alone, the price of FTT is down more than 70%. The token is now trading at levels not seen since 2020. It has now also hit a new two-year low, making it one of the worst-performing coins of 2022.

The decline looks eerily similar to that of the LUNA token following the collapse of the Terra network. In the same vein, the cryptocurrency has lost billions of dollars off its market cap and is currently sitting at a fully diluted market cap of $1.5 billion.

FTT (FTX) toke price chart from TradingView.com

FTT token trading at $4.459 | Source: FTTUSD on TradingView.com

Interestingly, the trading volume of FTT is up over 130% in the last 24 hours as traders try to take advantage of the token. Short traders have obviously enjoyed the most profit from their activities as FTT’s price dropped from $19 to $3 in a matter of hours.

Alameda Tokens Not Left Out

Alameda Research was one of the most active firms when it comes to crypto investments, which means they had their hands in a lot of pots in the space. As FTX is being brought to its knees, these other tokens have felt the impact of such a collapse.

Solana (SOL) which Alameda is vocally a backer of has been hit the worst of all tokens besides FTT that the firm holds. In the last 24 hours alone, SOL price is down more than 34%. The same is the case for Lido DAO (LDO) which has declined 23% in the last day. 

Alameda reportedly holds 100 million BitDAO (BIT) tokens and the coin is down 15% in the last 24 hours. 1inch Network has also suffered a similar fate, although to a lesser extent with only 7% in losses in the last day. All DeFi protocols that Alameda is invested in including MobileCoin, Serum, and Liquidity are mostly down double-digits as well.

FTX was an investor in the recently launched Aptos blockchain and the token has not been left out of the bloodbath. APT is down 30% in the last day as its price has declined to $4.47 at the time of this writing. 

Featured image from Currency.com, chart from TradingView.com

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