- FTX acquired Digital Custody Inc. for $10 million in February 2022 to expand its custody services, but sold it for just $500k in December 2022 after declaring bankruptcy.
- FTX filed for bankruptcy in November 2022 after a liquidity crunch triggered a run on the exchange, wiping out most of its value.
- The fire sale of Digital Custody Inc. to CoinList for 95% less than FTX paid shows the massive destruction of value from FTX’s collapse.
FTX’s custody unit, Digital Custody Inc., was acquired by the bankrupt crypto exchange for $10 million just months before FTX’s collapse. However, after FTX declared bankruptcy, Digital Custody Inc. was sold for just $500k to CoinList, representing a massive 95% discount.
Acquisition by FTX
In February 2022, FTX US acquired Digital Custody Inc., a Nevada-based company with a BitGo Trust license from the state for providing cryptocurrency custody services. The acquisition cost FTX $10 million and was part of the exchange’s efforts to expand its presence in the US market.
At the time, FTX said the purchase would bolster its “infrastructure and product capabilities.” The exchange planned to use Digital Custody’s custody license to custody assets directly, rather than through a third-party custodian like BitGo.
FTX’s Bankruptcy Filing
Just months after acquiring Digital Custody Inc., FTX filed for bankruptcy protection in November 2022. The filing came after a liquidity crunch at FTX triggered a run on the exchange.
FTX founder Sam Bankman-Fried resigned as CEO and the company brought in John J. Ray III to take over as CEO and oversee the bankruptcy process. FTX and its related entities listed over 100,000 creditors in the filing.
Fire Sale to CoinList
As part of the bankruptcy process, FTX’s assets are being sold off to repay creditors. This included Digital Custody Inc., which was sold in December to CoinList, a cryptocurrency exchange owned by Coinbase.
CoinList acquired Digital Custody Inc. for just $500,000 – representing a massive 95% discount to the $10 million FTX paid less than a year earlier.
The fire sale price reflects the huge loss in value of FTX’s assets after its abrupt bankruptcy. It also underscores the massive losses suffered by FTX’s customers and investors from its collapse.
After acquiring Digital Custody Inc., CoinList said it plans to leverage the custody license to expand its crypto offerings and provide custodial services for institutions.
Conclusion
The sale of Digital Custody Inc. for a fraction of what FTX acquired it for shows the massive destruction of value that occurred after FTX’s implosion. The episode serves as a cautionary tale about the risks inherent in the opaque and lightly regulated crypto sector.
