Sino Global, a notable crypto investment organization in Asia, possesses a significant number of the tokens that were severely impacted by the collapse of Sam Bankman-FTX Fried's crypto empire (1). Additionally, FTX was a crucial partner in a large fund that Sino formed with foreign investors' capital.
This past week, one of Asia's most prominent and well-known cryptocurrency investors, Sino Global Capital, which Matthew Graham runs, tweeted a statement claiming that the company's "direct exposure to FTX exchange was constrained to mid-seven figures held in custody."
— Sino Global Capital (@SinoGlobalCap) November 15, 2022
According to shareholder documents, the value of the company's portfolio of digital tokens was at $129 million as recently as earlier this year. (2)
Many of those tokens were among the strongly linked with Sam Bankman-Fried, the formerly crypto whiz who ran FTX. The phrasing of the proposition leaves widens the difficulty of how large the company's implicit exposure might be.
How The News Surfaced?
The uncovering of a slide deck that Sino Global had preferred to shop to shareholders previously this year as it was going to raise a crypto investment program, with an objective of as much as $200 million, is driving the additional scrutiny that is taking place at this time.
The slide deck was posted on a public website, and its authenticity has been acknowledged by a person familiar with the matter.
The presentation deck referred to FTX as a "partner" in the fundraising effort, noting that the company could unleash "substantial strategic value." As of the beginning of January, the fund already had a total of $90 million in assets, with FTX serving as an anchor investor.
As part of Sino's effort to promote its investing track record, the company provided a comprehensive list of its investments, totaling around $129 million in "mark-to-market investments." They featured the native SOL tokens of the Solana platform in addition to Serum (SRM), Maps (MAPS), Oxygen (OXY), and Jet Protocol (JET).
Did Sino Global Liquidate Their Tokens?
As a result of the dismantling of Bankman-crypto Fried's empire, including the most recent bankruptcy of FTX, the prices of each of these tokens have dropped by at least 80 percent.
It is unclear whether Sino still owns the tokens that made up the proprietary trading book as of January, how much the new fund manages at the moment, or what the fund itself possesses. Similarly, it is unclear what the fund owns.
If the investments have not been liquidated, one concern may be that whatever little value is still left in the token holdings may be further eroded if Sino moved to dump them; because the tokens are traded so infrequently, there are probably not enough willing buyers at the current price, which is already at a discounted level.
According to Sara Gherghelas, a blockchain expert working with DappRadar, "There is not enough liquidity to sell all of the tokens." If the development team decides to sell some of its tokens to meet the required level of liquidity, then the sale of tokens could proceed. If something like this occurs, it will result in a significant price drop.
Late in 2021, at the height of the frenzy caused by the bull market, the Liquid Value I fund was introduced to collect a total of $200 million. (3) It was the first time Sino had invested in a formal fund vehicle using funds from outside sources; before, the company had invested almost exclusively just as a principal.
In addition to its direct investments, Sino Global provided information about a portfolio of assets valued at $6.7 million for which there was no current market price. These comprised ownership shares in FTX and FTX.US, the company's American subsidiary.
The fund was not made available to retail investors on a public basis but rather targeted high-net-worth people for investment.
According to a filing made with the United States Securities and Exchange Commission (SEC) in February (4), Bankman-Fried himself participated as an indirect investor in the general partner of the Liquid Value I fund through his trading firm, Alameda Research, as well as an entity known as Alameda Ventures.
In addition to its primary investments, Sino Global provided information about a portfolio of assets valued at $6.7 million for which there was no current market price. These comprised ownership shares in FTX and FTX.US, the company's American subsidiary.
The slide deck does not provide specific information regarding the investments that would be made with the new fund; however, it states that the "Liquid Value Fund I might reflect a similar breakdown" to Sino's private investments.
A file made with a fund directory in the Cayman Islands reveals that Liquid Value Fund I is now operational, despite a registration date set for September 2021.
Suppose the token asset choices in Liquid Value Fund I were comparable to the choices Sino had decided to make for its investment strategy. In that case, that could be a terrible sign for the fund – even though, as with the proprietary investment, many of the price levels for those tokens had also suffered a sharp decline this year.
If the token asset choices in Liquid Value Fund I were parallel to the options that Sino had formed for its investment portfolio, that could be a good sign for the fund.
According to information provided by CoinGecko, MAPS, OXY, and JET are only little traded in the markets for digital assets, with a daily trading volume of less than $250,000 combined.
"If someone executes a market sell order of 1 million MAPS, it may easily wipe out the buy-side books with slippage of 25-30%," said Ajay Dhingra, head of research and analytics at Unizen.
Response of Sino
In its statement released this week, Sino stated,
"We trusted FTX to be a good actor devoted to pushing the industry ahead," adding that the company "truly regrets that misguided faith."
According to the statement, "Sino Global Capital is operating as normal and is continuing to invest as a fund." The fund's investments have been diversified across ecosystems, and we do not engage in leveraged trading or other tactics with a short-term horizon.
However, on a fundamental level, the fund's strategy and operations were so intricately intertwined with those of FTX that, even in the absence of any losses, it is likely that a speedy dissociation will be impossible.
There is a possibility that Sino liquidated some of its shares to realize a profit or cut its exposure. However, even if they were sold before the precipitous loss over the past two weeks, the returns would be questionable because of the price drops that occurred earlier this year across all crypto marketplaces.
The relationship with Tom Brady
As per sources, an important aspect of the fund's marketing strategy was emphasizing its connections with FTX and Bankman-Fried.
The name Bankman-Fried and the FTX logo were used extensively on the PowerPoint deck for January.
FTX's "rapidly rising brand recognition in the United States through high-profile sponsorships with Miami Heat Arena, Major League Baseball, and star athletes including Tom Brady, Steph Curry, and Lewis Hamilton" was also highlighted.
This week at an investment conference in Singapore, Graham, who works with Sino, was supposed to speak on a panel titled "prospect for digital assets" alongside Matthew Heller, an executive working for FTX. Originally, the panel was supposed to take place this week. A reworked agenda revealed that the two men's positions on the panel were eventually eliminated. (5)
