FTX collapse – seismic in the cryptocurrency world

On November 11, FTX officially filed for bankruptcy protection after a stormy week ended with rival Binance withdrawing its lifeline when it announced the cancellation of the “bet” to buy back FTX. The largest crypto-related bankruptcy to date stemmed from a number of leaks about a billion-dollar hole in FTX’s balance sheet.

One more stain

Binance played a big role in the demise of FTX. Both are the largest virtual currency exchanges in the world today. The CEOs of the two companies, Sam Bankman-Fried (FTX) and Changpeng Zhao (Binance), were partners before becoming rivals.

Bankman-Fried’s net worth as of last week was still $16 billion, while Zhao’s was $16.4 billion (after falling from $79 billion in the past year), according to Bloomberg News. Relations between them have been strained for more than a year when FTX has grown strongly and was once valued at $32 billion, attracting many investors from Singapore and Canada to sports stars and celebrities. .

The incident began when CoinDesk on November 2 published the balance sheet of Alameda Research, an investment fund of FTX, which showed that 40% of assets are backed by FTT (the token used on the FTX exchange). ).

The Reuters news agency explains this from the fact that Bankman-Fried transferred $4 billion, including customer deposits, to Alameda Research after the company suffered heavy losses earlier this year. The news immediately caused concern as a drop in FTT could affect both companies.

Rival Binance at the time announced that it would sell FTX tokens before “opening an olive branch with an offer to buy back FTX on November 8. But it was Mr. Zhao who withdrew the rescue offer overnight with the word explained that “the matter was beyond our control and ability to assist”.

“What a sad day,” Mr. Zhao lamented. As for FTX, Binance’s “turn the wheel” means that there is no way out after customers have massively withdrawn billions of dollars in the past few days.

On November 11, when FTX filed for bankruptcy, its token dropped by nearly 90%, to only $2.57/token, and the assets of CEO Bankman-Fried almost evaporated.

The shock also rocked the virtual currency industry as it is accustomed to capriciousness. The price of Bitcoin continued to plummet, down to about $16,000/bitcoin by the end of November 11.

“Another stain on the industry,” AFP news agency quoted virtual currency expert David Holt at research firm CFRA, commenting on the collapse of FTX.

The shock was because he was already the face of the cryptocurrency industry but it turned out he wasn’t.

Expert Thomas Hayes of Great Hill Capital Company in the US commented on how FTX CEO Sam Bankman-Fried became a billionaire and then went empty-handed after only a few years.

Investors “sit on fire”

The collapse of FTX also has many consequences when hundreds of thousands of investors are not sure when and how to get back billions of dollars in capital. FTX is under asset freeze and investigation on a global scale, from the Bahamas to Japan and Europe.

In the US, Reuters news agency reported that the Securities and Exchange Commission (SEC), the US Department of Justice and the US Commodity Futures Trading Commission have launched an investigation. “It’s not clear exactly what happened, but from all the reports there seems to have been a lot of wrongdoing,” former SEC attorney Howard Fischer told CNBC, adding that there will be many clients. sue to get their money back.

What worries governments around the world is the future of companies that are less stable than FTX. US Senator Elizabeth Warren, a Democrat who has been a critic of cryptocurrencies, said that the collapse of FTX is a wake-up call for Congress and regulators to force the industry and its leaders to must be responsible.

“Much of the crypto industry is fictitious. It’s time for stronger rules and stronger enforcement to protect people,” she suggested.

But does that make investors more cautious? Kevin O’Leary, the head of a venture firm that has invested in FTX, called on regulators to protect the cryptocurrency industry, but still told CNBC: “I lost money in my account, but I will continue to invest in cryptocurrencies.”