FTX meltdown, Big drop in Tech, Govt fines $2.6 Billion 📉

A lot happened this week, and here is a quick rundown.

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1. From $36 Billion to $0 - FTX Collapse 📉

What happened: FTX was widely regarded as one of the most stable and responsible companies in the wild, with a valuation of $32 Billion.

  • Brainchild of Sam Bankman-Fried (SBF), he initially founded Alameda Research in 2017 as a proprietary trading firm that dabbled in cryptocurrencies.

Recap: Earlier this month, the news outlet CoinDesk reported that Alameda Research held much of its reserves in a crypto token that FTX itself had created, FTT and it was not a small amount over $10 Billion was transferred from FTX user's accounts.

  • This money went to cover many losses that occurred after the recent crash of Terra Luna, Celsius, Voyager, and more.

  • Reports say the losses were so bad that Alameda was on brink of bankruptcy in March 2022 and was looking for $2-5 Billion in outside funds

In April, Sam Bankman reached out to Elon Musk for an investment of $5 Billion but got refused after Musk questioned the legitimacy of FTX's assets.

How did this happen: If media speculation is to be believed, the problem lies with the liquidity of funds, i.e. customers wanting their funds back.

  • Herein lies the controversy, if an exchange is only acting as an intermediary, it should never have a problem returning the funds as a mere middleman, one does not take customer funds and spend them as if they were your own.

But SBF used FTX's customer's funds to loan Alemeda which in turn pumped FTX’s own crypto token called FTT.

  • Nobody knew how many FTT tokens Alameda actually held except when somebody leaked their balance sheet to CoinDesk paving the way to a mass frenzy of customers demanding their money back.

Here's a quick look into SBF's empire built on lies:

So what next: On Monday, FTX officially declared bankruptcy

  • FTX's backer Sequoia Capital marked down its $200 Million investment to zero dollars addressed in a letter to its investors. (More)

As part of the move, FTX founder Sam Bankman-Fried, known as SBF, will step down from his role as chief executive. He will be replaced by John J. Ray III, the lawyer who was brought in to clean up the mess during Enron’s infamous collapse in the mid-2000s.

In short: FTX crashed, and filed for bankruptcy, followed by an assurance of stable assets, further followed by widespread criticism and resignation of related parties.

2. Big drop in Tech Stocks ☔

What happened: Paytm, Zomato, Nykaa, and Policybazaar all went public to great acclaim, and their stocks have received a lot of attention since then.

  • In 2022, however, they have lost more than 55% of their market capitalization (m-cap) from the combined m-cap of $20.16 Bn as against $45.18 Bn.

  • Consequently, shares of Paytm, Nykaa, and Policybazaar have been seeing extreme volatility, which is expected to continue over the coming days.

Backdrop: The Indian startup ecosystem matured in 2021 when funding skyrocketed and new-age tech startups debuted to widespread acclaim on stock exchanges.

  • In total, Indian tech startups raised more than $42 Bn+ across 1,583 deals as per data recorded by Inc42.

  • Global economic slowdown and market volatility have taken a toll on India's new-age technology stocks.

Indian tech stocks drops at all time low

But: Data on the BSE showed that of the 64 companies that got listed in 2021, as many as 30, that is nearly half the total listings are in the red compared to their offer price.

  • Few reasons for the bear market are rising interest rates in the US, FII flows money to bonds with higher yields, changes in consumer habits, etc.

Bottom Line: With the lock-in expiry knocking at the door, new-age tech giant's stocks are at risk of sell-off which would in turn affect forex and investment within the nation.

3. GST fines $2.6 Billion on Gameskraft💸

winning tv land GIF by #Impastor

DGGI slaps a tax notice of $2.6 Billion (Rs 21,000 crore) on Bengaluru-based Gameskraft Technology for allegedly evading GST on the betting amount.

What happened: The legal departments of India’s gaming startups that run platforms where “real money” is wagered on the outcome of games like rummy and poker.

  • Gameskraft—is one of the leading real-money-gaming 🎲 (RMG) companies and among the most profitable startups in the country.

Context: The allegations leveled against the company concerned the majority of RMG firms. Claims arose as a result of inconsistencies in the company's invoices.

  • By openly supporting Gameskraft, the companies did not want to invite the ire of the GST authorities, that the tax department might come after their own huge interests and fortunes next was a later thought

The bottom line: The measures are necessary to be implemented to prevent exploitative practices but there is also a need for the legislature and executive to take into consideration the possibility of arbitrariness.

🔥Top headlines this week:

Quadrupling down: Apple’s Taiwanese contractor Foxconn is looking to quadruple the workforce at its iPhone-making plant in Tamil Nadu over the next two years.

Adding to cart: American cosmetics major Estée Lauder has entered exclusive negotiations to buy the luxury fashion brand Tom Ford in a deal worth $2.8 billion.

Try and buy: Chinese fast-fashion company Shein is opening its first permanent showroom in Tokyo’s popular Harajuku area. Ordering, however, will happen online via QR codes.

Blood money: US prosecutors are demanding 15 years in prison for Theranos founder and chief executive officer Elizabeth Holmes for committing fraud.

Kill switch: After laying off more than 11,000 employees, Meta is pulling the plug on its smart display device Portal and unreleased smartwatches.

Slowing down: Disney will freeze hiring, while also cutting some jobs from its nearly 200,000-strong workforce, after a set of disappointing quarterly results.

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