The Tribune

• $6bn liquidity crunch forces FTX sale

• Uncertainty on $60m Bahamas HQ plan

• Banker: Ambitions bigger than one entity

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The seemingly-forced sale of The Bahamas’ flagship digital assets investor will not undermine the country’s ambitions to become a major “hub” in this space, a prominent banker argued yesterday.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive and a member of the Government’s Digital Advisory Panel, which advises on the digital assets sector’s development, told Tribune Business that FTX’s potential purchase by rival crypto currency exchange, Binance, does not reflect poorly on this nation’s regulatory regime.

Emphasising that his views were his own, he added that this jurisdiction’s signature Digital Assets and Registered Exchanges (DARE) Act, and wider regulatory regime, had “held up” in the absence of any concerns while pointing out that The Bahamas’ strategy in this sector went far beyond just one player.

FTX’s Bahamas executives were yesterday tight-lipped on what the company’s sale to/merger with Binance might mean for its plans locally. Valdez Russell, FTX’s vice-president of communications, did not directly respond to Tribune Business questions on the potential impact the proposed deal will have on its planned $60m Bayside Executive Park headquarters or recruitment of several hundred Bahamians.

FTX has also made multiple donations, worth in the millions and thousands of dollars, to non-profits such as the Agricultural Development Organisation (ADO) and other charities and good causes. That funding source may now dry up depending on whether the sale to Binance goes through and whether the latter share’s FTX’s interest in doing business in this nation. The company is also understood to employ around 50-60 persons already in The Bahamas.

Mr Russell instead referred this newspaper to the already-published Twitter tweet by FTX’s chief executive, Sam Bankman-Fried. The latter, noting that Binance was FTX’s first investor, said: “Things have come full circle, and http://FTX.com’s first, and last, investors are the same.

“We have come to an agreement on a strategic transaction with Binance for http://FTX.com (pending due diligence etc.). Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches. All assets will be covered one-to-one. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. -- we apologise for that.

“A huge thank you to CZ (Changpeng Zhao, Binance’s chief executive), Binance and all of our supporters. This is a user-centric development that benefits the entire industry. CZ has done, and will continue to do, an incredible job of building out the global crypto ecosystem and creating a freer economic world.”

FTX, though, appears to have been a forced seller and was forced to turn to Binance for help after suffering “a significant liquidity crunch”. Mr Bankman-Fried, in a letter sent to FTX staff yesterday that was obtained by the Reuters news agency, revealed that the crypto currency exchange suffered $6bn of withdrawals in the previous 72 hours.

He wrote: “On an average day, we have tens of millions of dollars of net in/outflows. Things were mostly average until this weekend; a few days ago. In the last 72 hours, we’ve had roughly $6bn of net withdrawals from FTX.” The FTX chief added that withdrawals from FTX.com were “effectively paused”, while there was no definitive answer on details surrounding the Binance deal.

Binance chief, CZ, confirmed that the two sides had agreed a “non-binding Letter of Intent” for its acquisition of FTX.com subject to the due diligence results proving satisfactory. “This afternoon, FTX asked for our help,” tweeted CZ. “There is a significant liquidity crunch. To protect users, we signed a non-binding [letter of intent], intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full due diligence in the coming days.”

Binance will thus acquire FTX.com on undisclosed terms to bail it out of its liquidity crisis. The latter’s sharp, and sudden, descent into trouble was sparked by reports that Alameda Research, FTX’s sister company, held around half of its multi-billion dollar assets in the FTT crypto tokens previously created by FTX.

CZ responded by revealing that Binance would be selling $2bn worth of FTT tokens that it held, and the move send the latter’s price crashing through the floor despite the best efforts of Mr Bankman-Fried and FTX to halt the rout. With Binance’s plans for FTX unclear, and the deal yet to be sealed, the fate of FTX’s $60m West Bay Street headquarters - the proposed location for a 700-strong workforce - is now shrouded in uncertainty.

FTX Digital Markets, in the Environmental Impact Assessment (EIA) for the complex at Bayside Executive Park, indicated it was targeting a January 2023 building start with the construction workforce set to hit a monthly peak of 345 in August. Just 40, or 11.6 percent, of those posts will be held by skilled expatriate managers and labour.

“The FTX headquarters will positively impact the economics of The Bahamas by hiring local Bahamians through the various phases of the project, and stimulating the economy through tourism,” the EIA said. “Sixty million dollars is the total estimated capital of this project [and] Bahamians will be hired through construction phases and during operation.

“During operation it is proposed that over 100 Bahamians will be hired to work within the crypto community, which will advance the skill development of the country in this new and growing field. Even more Bahamians will be hired for maintenance and support throughout the project site.”

The 4.95 acre site, located between Bayside Executive Park’s existing buildings and the Orange Hill Beach Inn, is to feature two boutique hotel buildings covering a total 77,000 gross square feet and spanning seven levels, with a parking area 51,000 gross square feet in size. Residential and office spaces, also spread over seven levels, will cover 116,000 gross square feet and be accompanied by a 205,000 square feet parking area.

Other planned facilities include an athletic and wellness area; a theatre; auditorium; conference centre; cafe/restaurant; retail; a daycare centre; and “vertical farm”. Some 30 percent of the energy needed by the FTX Digital Markets head office will come from solar photovoltaic panels located on the hotel and office buildings.

Mr Bowe yesterday warned against speculating how the Binance deal may pan out. He pointed out that mergers and acquisitions transactions of this nature are a regular feature of the corporate world, and suggested that this one is being “over romanticised” because of FTX’s community activities and the publicity surrounding Mr Bankman-Fried who was treated in some quarters as “almost a mythical character, almost a Wizard of Oz type operator”.

However, one high-level financial services source, speaking on condition of anonymity, said the fall-out from FTX’s sale could be far-reaching. Besides the fact that The Bahamas has employed the crypto currency exchange as the flagship to attract other digital assets investors, they pointed out it has also been “spraying money around” among Bahamian non-profits, charities and good causes.

The source added that FTX and its executives have also boosted the high-end real estate market in western New Providence via the purchase of high-end homes, which may now all have to be placed back on the market at the same time, thus impacting prices. “FTX was the linchpin of the strategy to grow the digital assets economy and it has just collapsed,” they added.

Mr Bowe, though, said the most critical aspect for The Bahamas is that the DARE Act’s integrity - and that of the wider regulatory regime and digital assets business strategy - remains intact. “While they were the first to be attracted to the jurisdiction as a result of the legislation, that was really hoping it would be the catalyst for more players to come,” he told Tribune Business of FTX.

Pointing to last week’s announcement by OKX, another crypto currency exchange, that it has become licensed and registered with the Securities Commission under the DARE Act, Mr Bowe added: “Equally I would hope that the intent of the Government with the digital assets strategy is that it is not pegging our hopes on one particular institution.

“As a jurisdiction, our focus is: Were the activities that were regulated under scrutiny? The answer is ‘no’, which means the legislation and regulatory regime held up well.” The Fidelity Bank (Bahamas) chief also warned against becoming carried away over what the potential sale may mean for FTX’s Bahamas plans.

“We need to pause,” he argued. “We have this news but it could mean a whole number of things. Binance is an exchange and maybe it’s interested in registering under the DARE Act and registering in The Bahamas. FTX has been quite busy in terms of all the impacts they seem to have had by contributing to the local economy, but we don’t know if these elements will be unravelled.

“At the end of the day there’s a lot more to be understood, and until we understand we in The Bahamas should keep our powder dry. The reality is we will have players come in, players come out, and the hope is that our regulatory authorities will allow them to thrive and operate in a well-regulated environment. So far nothing has indicated to the contrary.”