Joey Krug, co-CIO of cryptocurrency investment firm Pantera Capital, recently discussed how his company had been impacted by the demise of SBF’s FTX empire and the short, medium, and long-term effects he had anticipated it would have on the cryptocurrency market. Pantera joins the list of firms to have revealed the depth of impact the contagion had on their borders.
Krug on the FTX contagion
Regarding Pantera’s exposure to FTX, Krug stated that their strategy was designed to limit exposure to centralized counterparties while keeping some degree of trading freedom. According to his statement, the firm’s Blockfolio purchase funds, valued in FTT and FTX shares, represent the principal risk and losses from the FTX occurrence. On Tuesday, November 8th, the company liquidated as many FTT as possible. The firm’s positions in FTX equity and FTT tokens represented less than 3% of its total AUM on Monday night before it collapsed.
Four years ago, Pantera, a crypto hedge fund, registered one of its most significant achievements – a 10,000 percent capital return. It is now among the firms feeling the pinch of the FX demise. FTX and Alameda may have considerable counterparty or custodian risk, according to Krug, who says the business identified and contacted portfolio teams from its universe of early-stage token and blockchain startup companies. The majority of contacted portfolio teams reported having little to no counterparty or custodial exposure to FTX and Alameda after interacting with or receiving an investor update, according to the company.
“Although we anticipate that the upcoming weeks and months will provide more information, our initial impression is that this limited exposure is partially due to the proactive risk management and custody/treasury management practices that we seek out and regularly emphasize with our founders.”
What could be the repercussions of the FTX contagion
According to the firm, those who lost assets held on FTX’s exchange may feel pain in the short term. More generally, the firm anticipates further price volatility throughout the cryptocurrency ecosystem as investors change their portfolios due to concerns about contagion. The FTX-related assets (Solana and the projects based on it, Aptos, etc.) will probably take the biggest blow, according to Krugz’s statement.
Pantera claims that a cryptocurrency regulatory reaction is probable, but they are cautiously confident that it will produce favourable medium- and long-term outcomes. Krug laments that centralized financial transaction intermediates are opaque and frequently unreliable, as the crisis has clarified. He concludes that the necessity for decentralized, trustless protocols that let users trade, keep, and transfer their assets without depending on organizations like FTX, Celsius, or Voyager could not have been more evident.
Pantera is hopeful that regulators will realize this and focus on regulating centralized institutions operating in the space rather than DeFi as they currently do.