Days after the FTX debacle, all eyes are now on rival Crypto.com.
Investors worried about the magnitude of the consequences caused by this shock wonder if there are not other corpses in the drawers of the crypto industry. Speculation is therefore rife.
For some Crypto.com could be the next cryptocurrency company to face a severe liquidity crisis as the collapse and bankruptcy of FTX is prompting greater scrutiny in the digital assets industry.
But the Singapore-based exchange’s CEO Kris Marszalek said the company’s exposure to crypto exchange FTX was minimal and had a “tremendously robust balance sheet.”
"We never needed to raise any funds,” he said during an interview hosted on its YouTube channel.
Marszalek claimed Crypto.com has an exposure of under $10 million to FTX when the firm went bankrupt on Nov. 11. Other investors have reported larger losses: venture capitalist Sequoia Capital said it lost $210 million to FTX, while the Japanese firm Softbank has quantified its losses at $100 million.
The chief executive officer said that Crypto.com had in the past sent $1 billion to FTX for the purchase of stablecoins, which are digital currencies whose prices move very little. But that the company had recovered almost all this sum before the bankruptcy of FTX.
"We've recovered everything,” Marszalek claimed. "Our exposure is less than $10 million. Those are the facts."
He did not say when Crypto.com got the money back.
'We've Never Used It'
The insolvency of FTX, which filed for Chapter 11 bankruptcy on Nov. 11, appears to have occurred when its founder Sam Bankman-Fried reportedly transferred $10 billion of customer funds from FTX to his cryptocurrency trading platform Alameda Research, according to Reuters, which cites two sources that "held senior FTX positions until this week."
FTX faces a shortfall of $1.7 billion, one source told Reuters, while the other source said between $1 billion and $2 billion was missing. Bankman-Fried, who resigned as CEO, was once hailed as the savior of the sector during the liquidity crisis of last summer. His company was valued at $32 billion in February and is now insolvent.
But Crypto.com is facing massive sell-offs in its Cronos (CRO) token, which is in free fall and down 41.6% over the last seven days, according to data firm CoinGecko. CRO has plummeted by 92.8% from its all-time high as investors are worried it could be the next crypto company to fail due to a lack of liquidity.
CRO was not used as collateral in any loans, not "even once,” Marszalek said.
"We’ve never used it and we haven’t needed to use it,” he said.
CRO is a "native currency of the decentralized Cronos blockchain with Crypto.com being one of the open-source contributors to a vibrant and growing ecosystem,” a Crypto.com’s spokesperson told TheStreet.
The downfall in the price of CRO is due to a "number of market factors,” she said. "We expect cryptocurrencies in general to continue fluctuating following the ongoing impact of the bear market and now compounded with the ripple effect caused by FTX.”
The price of CRO will not impact the liquidity and future profit margins of the company, the spokesperson added.
"However, its price has no impact on our ability to operate or our profitability. We are finishing our second year in a row at over $1B in revenue with more than 70M users worldwide, and our balance sheet is strong and we are cash flow positive."
Valuation of CRO rose on Nov. 14 by 13% at $1.7 billion, according to CoinGecko but this market value has fallen by nearly $17 billion compared to its all-time high reached in November 2021.
The market value of tokens issued by a crypto firm is an indication of the capitalization of the firm itself. In addition, FTX had used its FTT token as collateral on loans.
Trading Volumes Are Down
Customers of Crypto.com are also wary of buying and selling digital assets through the exchange as its daily volume dipped from highs of $4 billion in 2021 to about $284 million in October, according to data from Nomics. Investors have also increased the number of withdrawals from the platform, fearful of the stability of crypto exchanges.
The company’s audit is undergoing, but the timeline for its completion will not be immediate since audit firms "don’t work at crypto speed,” Marszalek said.
Criticism was heaped onto the company when it agreed to spend $700 million in a 20-year deal to rename the former Staples Center, home of the NBA franchise Los Angeles Lakers.
The company also spent millions to run ads during the Super Bowl, never mentioning the word crypto, but featured basketball superstar LeBron James who goes back in time to 2003 to tell himself "if you want to make history, you got to call your own shots.”
The Crypto.com tagline is: "Fortune favors the brave.”
Some of the ads during the Super Bowl were sold for $7 million for 30 seconds, NBC said.
The crypto exchange also invested money in using Matt Damon as a brand ambassador.
But Marszalek said the sponsorship was not a large investment.
"We pay a small amount every year, which amounts to around 10% of our revenue,” he said. "This is not crazy compared to other companies. "Growth to 70 million users is not possible without some investment into brand awareness.”
Sports teams welcomed the multi-million dollar partnerships in 2021 from cryptocurrency companies like FTX. Investors have often been wary of companies purchasing naming rights to stadiums because of the large investment. Many of those deals involving naming rights appear to be cursed and the companies who spent hundreds of millions of dollars wind up filing for bankruptcy protection in the future.
In 2021, FTX agreed to a 19-year deal to pay $135 million to change the name of the home of the NBA's Miami Heat to FTX Arena. The Miami Heat cut ties on Nov. 11 with the exchange.