Sequoia Capital marks down its FTX investment to $0

A pile of Bitcoins are shown here after Software engineer Mike Caldwell minted them in his shop in Sandy, Utah.

George Frey | Getty Images

Venture capital firm Sequoia Capital said it will mark down to zero its investment of over $210 million in cryptocurrency exchange FTX, as possibilities of bankruptcy loom.

“In recent days, a liquidity crunch has created solvency risk for FTX,” Sequoia said in a note to investors posted on Twitter.

“Based on our current understanding, we are marking our investment down to $0,” the Silicon Valley-based firm said Wednesday.

“The full nature and extent of this risk is not known at this time,” Sequoia said, adding that they are monitoring the situation which is developing quickly.

FTX, owned by 30-year-old entrepreneur Sam Bankman-Fried, was valued at $32 billion earlier this year.

Sequoia’s announcement comes as rival exchange Binance’s CEO Changpeng Zhao backed out of a proposed deal to purchase FTX, leaving the beleaguered firm at risk of a liquidity crisis.

Also on Wednesday, the U.S. Department of Justice and the Securities and Exchange Commission reportedly launched investigations into the sudden implosion of the crypto trading platform.

FTX’s native token FTT was down nearly 30% and traded at $2.21 on Thursday. The broader cryptocurrency market has taken a beating as well, with bitcoin touching a new low for the year earlier this week.

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Sequoia highlighted that its exposure to FTX was limited, and that it invested $150 million in FTX.com and FTX.us through the Global Growth Fund III.

“FTX is not a top ten position in the fund,” the company said, adding that it accounts for less than 3% of the total capital of the fund.

“The fund remains in good shape,” the note said, and elaborated on how its losses due to its exposure to FTX is offset by a larger capital flow of “realized and unrealized gains in the same fund.”

“We are in the business of taking risk,” Sequoia said in its note. “Some investments will surprise to the upside, and some will surprise to the downside.”

‘Wild Wild West’

Separately, Minneapolis Fed president Neel Kashkari on Wednesday continued his sharp criticism against cryptocurrencies.

“It’s kind of the wild Wild West and chaos all rolled into one,” he said of the virtual asset during an event at South Dakota State University,

He added the “fatal flaw” in the asset is that anyone can create those coins, making them “hard to distinguish.”

“It might be 99% noise, hype and confusion based on what’s going on right now,” he said, without further commenting on the implosion of FTX and its spillover effect onto other currencies.