The Story Behind The Collapse Of FTX: What Went Wrong With FTX Exchange?

Cryptocurrency exchange FTX filed for protection there clients by Chapter 11 bankruptcy. After swift fall from grace. FTX valuation is plunged from worth 32$ Bilion to bankruptcy in a matter of days. dragging down founder and CEO Sam Bankman-Fried’s 16 bilion net worth to near-zero. Bankman-Fried said that he had about 100,000$ in his bank account, during Nov.30 interview with the New-York Times columnist Andrew Ross at the DealBook Summit.

FTX collapse shook the volatile crypto market, which lost billions in value, dropping below 1 Trillion Dollar. The consequences of FTX’s rapid decline and collapse will likely impact cryptocurrencies well into the future and could even drag down broader markets.

Bankman-Fried has lawyered up and on Dec.6 hired white-collar crime attorney Mark S.Cohen, a partner at Cohen&Gresser, a former federal prosecutor, and part of the legal team of convicted sex trafficker Ghislane Maxwell. Caroline Elison, who headed the FTX-affiliated Alameda Research, has hired Washington-based law firm Wilmer Cutler Pickering Hale and Dorr to represent her.

The U.S House of Financial Services Committee said it will hold a hearing in Dec.22 on the FTX collapse.

What Happened To FTX Cryptocurrency Exchange ?

FTX’s collapse took place over a ten days period on the Nov.22. The catalyst for the crisis was a Nov.2 scoop by CoinDesk that revealed that Alameda Research, the quant trading firm also run by Bankman-Fried, held a position worth $5 billion in FTT, the native token of FTX. The report revealed that Alameda’s investments foundation was also in FTT, the token that its sister company had invented, not a fiat currency or other cryptocurrency. That prompted concern across the cryptocurrency industry regarding Bankman-Fried’s companies undisclosed leverage and solvency.

FTX Liquidity Crisis and Binance Deal

By the next day, FTX was experiencing a liquidity crisis. Bankman-Fried attempted to reassure FTX investors that its assets were stable, but customers demanded withdrawals worth $6 billion in the days immediately following the CoinDesk report. Bankman-Fried searched for additional money from venture capitalists before turning to Binance. the value of FTT fell over 80% in two days.

Couple days later Binance has announced it had reached a nonbinding agreement to buy the non-U.S. bussiness of FTX for an undisclosed sum-effectively the world’s biggest cryptocurrency exchange bailing out its close rival. But, the promise of rescue was short-lived, as Binance backed out from the deal very quickly after realize there is a big problem with how Bankman-Fried has managed his company.

Bankman-Fried Steps Down as CEO of FTX Exchange

Bankman-Fried Stepped down on the end of Nov.22 as CEO of FTX, replaced by John J. who leads energy trading firm Enron through bankruptcy proceeding years before. FTX filed for Chapter 11. bankruptcy protection the same day, revealing that roughly 150 other affiliated companies were also part of the collapse of FTX exchange. The bankruptcy filings indicated that FTX had assets in the range of about 10$ billion to 50$ billion.

Future of FTX Consequences of Collapse

The future of FTX as a cryptocurrency exchange never has seems in more jeopardy as it is now. As of mid-Nov 2022, withdrawals are disabled and a notice on the FTX website says the company “strongly advises against depositing”.

The board consequences of the FTX fiasco for the cryptocurrency industry will also take time to unfold. As the largest collapse in the short history of cryptocurrencies, FTX may future deter investors, who are already deep within invests for the company. Customers of FTX platform may not recover there assets, potentially triggering legal actions to take place. There are many regulators which may see FTX collapse as justification for tightening regulatory security of cryptocurrencies. The Congress may be even more inclined to step in and create new laws governing digital tokens and exchanges.

The Bottom Line

Cryptocurrency FTX Exchange collapsed over a period of roughly 10 days. Following a report suggesting potential leverage and solvency concerns. FTX Exchange has faced a liquidity crisis and tried to negotiate a bailout by there biggest rivals, Binance. As we know now the bailout quickly fell through. FTX saw its assets frozen, its CEO resigned, and it filed for bankruptcy within days. The ongoing implications for the future of FTX and the broader cryptocurrency industry are ongoing and difficult to assess.

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