May 23, 2022

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Crypto billionaires’ fortunes destroyed within weeks amid sell-off

Brian Armstrong owns 16% of Coinbase and controls 59.5% of the voting shares.

It’s been a few weeks since the crypto crowd in Miami celebrated.

The fortune of the founder of Coinbase Global Inc. , Brian Armstrong, $13.7 billion as recently as November and about $8 billion at the end of March. That’s now just $2.2 billion, according to the Bloomberg Billionaires Index, after the sale of cryptocurrency from Bitcoin to Ether sharply plunged the market capitalization of Coinbase, the largest US cryptocurrency exchange.

The company’s shares have fallen 84% since the first trading day in April 2021, to close Wednesday at $53.72 after the company warned that monthly trading volume and transactions for users were expected to be lower in the second quarter than the first.

This has raised questions about Coinbase’s ability to withstand the sharp drop in cryptocurrency prices, forcing Armstrong to take to Twitter to defend the company. Armstrong, the company’s chief executive, said there was “no risk of bankruptcy” even amid the “black swan” event and users’ money was safe.

Then there is Michael Novogratz. The CEO of commercial crypto bank Galaxy Digital saw his fortune drop to $2.5 billion, from $8.5 billion in early November. The champion of TerraUSD, the algorithmic stablecoin that is now at risk of a complete meltdown amid the collapse in the price of the crypto token in the same ecosystem, has been Luna.

“I am probably the only man in the world who has ever gotten a Bitcoin tattoo and Luna tattoos,” Novogratz said at the Bitcoin 2022 conference in Miami on April 6.

The billionaire’s crypto fortunes that have ballooned over the past two years are disappearing after a sell-off that began flowing tech stocks into digital cash. Bitcoin, the most popular cryptocurrency, and Ether have both fallen more than 50% since their record highs late last year.

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While nearly all holders of cryptocurrencies have experienced a decline in wealth, some of the biggest and most visible losses are concentrated among exchange founders, as traders buy and sell cryptocurrencies.

On paper at least, Changpeng Zhao, the CEO of confidant Binance, has lost an even bigger fortune than either Armstrong or Novogratz. He debuted on the Bloomberg Wealth Index in January with a net worth of $96 billion, and is one of the largest in the world. By Wednesday, that had shrunk to $11.6 billion, using the average enterprise value of multiples of Coinbase and Canadian crypto firm Voyager Digital as the basis for the calculations.

It appears that US cryptocurrency exchanges are suffering from a larger downturn than their global competitors. Coinbase trading volumes have been steadily declining since the beginning of the year, while the internationally focused platform Binance saw a slight increase in volume last month. By comparison, Binance’s US-focused business has seen a steeper decline than Coinbase’s.

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Tyler and Cameron Winklevoss, co-founders of rival Gemini Exchange, have lost about $2.2 billion – or nearly 40% – of their fortune this year. The fortune of Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, has halved since the end of March to about $11.3 billion.

Armstrong isn’t the only Coinbase billionaire losing money. Co-founder Fred Ehrsam, former trader at Goldman Sachs Group Inc. His fortune is currently $1.1 billion, down more than 60% this year.

Armstrong owns 16% of Coinbase and controls 59.5% of the voting shares, according to the company’s 2022 proxy statement, while Ehrsam owns and controls 4.5% of the voting shares.

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Coinbase’s bonds have also fallen, recently trading in line with some of the more risky junk-rated notes.