Multicoin Capital, a crypto venture firm, told investors in a letter on Thursday that FTX’s collapse and price declines across the industry have pushed the fund down by 55% this month, and that the market is poised to get worse before it recovers.
Multicoin stated that there is a chance it will recover some of its funds from FTX, but because those assets are now entangled in bankruptcy proceedings, it expects to write them down to zero.
It’s a 180-degree turn for Multicoin, which announced a $430 million fund in July, its third and largest to date.
“We put entirely too much trust in our relationship with FTX,” Multicoin managing partners Kyle Samani and Tushar Jain wrote in the 3,400-plus word letter, which CNBC obtained. “We had too many assets on FTX.”
The firm said in a letter last week that it was able to recover about one-quarter of its assets from FTX, but the money still stranded there represented 15.6% of the fund’s assets.
Multicoin also said at the time that it had traded on three exchanges: FTX, Coinbase and Binance. Now, 100% of its assets “outside of the capital stuck on FTX” is on Coinbase.
“At present, the fund has no assets exposed to any other counterparties,” Multicoin said. “In the future, we anticipate some diversification of custodial exposure – with Coinbase expected to remain our primary custodian – and will resume trading with other counterparties as we continue to assess the present market fallout.”
A spokesperson for Multicoin, John Robert Reed, declined to comment for this story.
Multicoin stated that it does not expect the cryptocurrency market to turn anytime soon. This is because there will be more collapses as a result of the sudden failure of FTX and sister hedge fund Alameda Research, both of which were owned by Sam Bankman-Fried. On Friday, both entities filed for bankruptcy.
“We expect to see contagion fallout from FTX/Alameda over the next few weeks,” the letter said.
“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.”
As other companies with assets tied to FTX seek to raise emergency funds, “we are looking to buy dislocated assets at attractive valuations,” Multicoin added.
Because of its large position in the Solana token, Multicoin took another significant hit with FTX’s failure. Bankman-Fried was a big supporter of Solana, and Alameda was a big coin holder. Solana’s value has dropped 64% in the last 12 days as a result of this association.
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