Multicoin Capital’s Fund Tanks 55% Amid FTX Collapse

The FTX contagion is spreading wide and fast! On Thursday, November 17, crypto venture giant Multicoin Capital told its investors that the FTX collapse has pushed the fund down by a staggering 55% over the last month.

Multicoin believes that there’s a possibility of recovering some of its assets from FTX in the future. However, since FTX is currently wrapped up in bankruptcy proceedings, Multicoin Capital prefers to write them down to zero. The crypto venture firm didn’t mention exactly what amount it is writing off due to FTX collapse. But market experts believe that this could be above $850 million dollars.

Multicoin managing partners Kyle Samani and Tushar Jain wrote: “We put entirely too much trust in our relationship with FTX. We had too many assets on FTX.”

Multicoin Capital had $863m of assets on FTX.

— Peter McCormack🏴‍☠️ (@PeterMcCormack) November 18, 2022

This comes as a massive blow for Multicoin which recently launched its $430 million fund in July. Last week as the FTX collapse was unwinding, the firm managed to retrieve about one-quarter of its assets from the exchange. However, it still has nearly 15% of the fund’s assets on FTX.

Multicoin Capital had distributed all of its funds across three exchanges including Binance, FTX, and Coinbase. Now, the crypto venture fund has 100% of its remaining assets either on Coinbase or in self-custody. The company said:

“At present, the fund has no assets exposed to any other counterparties. 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.”

FTX Contagion Could Take Down Many Trading Firms Down

Multicoin Capital believes that the worst is still ahead of us before things get better. The sudden failure of the world’s secon-largest crypto exchange and Alameda Research could bring down more trading firms. In the letter to investors, the crypto venture firm 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.”

The losses of Multicoin aren’t just limited to FTX. The crypto venture firm was holding a huge position in Solana (SOL) token the value of which has plunged by 65% in the last 12 days.

However, Multicoin said that it would continue to hold Solana since it 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 firm said.

The crypto venture giant believes that the FTX collapse is not the end of the crypto market. “As the leverage gets cleared out of the system, we expect to see green shoots next year,” the letter said.

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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