Wave Financial, a crypto asset manager with over $1 billion under management, succeeded in navigating the collapse of crypto exchange FTX with zero client losses. Now it’s warning of potential risks with other exchanges.

“We did have assets on FTX for clients a week or two before it actually imploded, but we knew what was going on or started to hear what's going on long before there was a real problem and got all the assets out,” David Siemer, Wave Financial’s CEO, said on an end-of-year client call last week that The Block was invited to attend.

FTX filed for bankruptcy protection in November, leaving hundreds of thousands of clients with funds frozen on the exchange. U.S. prosecutors last week charged former CEO Sam Bankman-Fried with fraud and money laundering. Siemer said it's unlikely the pain will stop there.

“Our expectation is there are a whole bunch of others, some of them even top 10, exchanges that are probably functionally insolvent as well,” Siemer told clients. “And we're just sitting around waiting to see when they blow up.” 

Distressed crypto assets 

Wave Financial's risk-first approach has helped the firm to maintain a strong balance sheet in the crypto bear market, which it's now using to snap up distressed assets, Siemer said.

The asset manager was among several bidders for the assets of bankrupt crypto exchange Voyager Digital, which filed for bankruptcy in July. Wave also recently announced its intention to acquire Swiss-based investment firm Criptonite Asset Management. 

“We bid on two companies last week,” Siemer said. “I mentioned we completed one acquisition a few months ago, which is also pretty distressed, not distressed like bankruptcy but running out of money. And there are probably three others we are leaning toward making offers for, things are really cheap in crypto.”

Prices are dropping as many of the bigger buyers in the space are no longer in the game, Siemer said. 

"A couple of deals we are making offers on we are literally offering them zero and a teeny bit of stock and we are going to get it because it's either that or they put the lights off,” Siemer said. “It’s really just tactical hires.” 

“The first crypto winter we went through, which is right when we launched the company in 2018, we were completely on defense. That was not fun,” he added. “We survived but that was about all we did. This time we are set up to take advantage of this.”

Is Binance safu?

Any further exchange collapses will bring more bad press and greater focus on the crypto industry from regulators, but the damage will be a fraction of FTX's impact, Siemer said. 

This implies that Binance, the world's largest crypto exchange, isn’t counted on Siemer’s danger list. There’s been speculation about the health of the exchange by some market participants, and last week it experienced significant withdrawals. Reuters published an investigation on Monday pointing to the lack of transparency in Binance's finances. 

“They're the biggest exchange in the world,” Siemer said on the call. “There's no chance in my mind that Binance lost money the way FTX lost most of the money — and they don't do directional bets. They don't have a hedge fund attached to them that's out there just punting and arbing and taking all these weird bets that sometimes go wrong.” 

Even with this confidence, the Wave Financial team, which is made up of traditional finance veterans, still takes a cautious approach to trading on Binance. 

“We'll put on the coins, we'll trade it, we'll get it off within an hour,” Siemer said. “And we just keep our exposure really, really limited. At any point in time, we have close to zero exposure.”