What happened to the crypto exchange FTX?
Nov 30, 2022
4 min read
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Cryptocurrency exchange FTX, which occupied a flagship position in the market of crypto-trading, began bankruptcy proceedings. The company tried to get out of the crisis in different ways, even through the sale of assets to competitors from Binance. However, after fraud allegations and the disappearance of a huge amount of customers' money, the path to salvation was closed. As a result, the cryptocurrency market collapsed and the director of FTX decided to resign. In this blog, let's look into how this situation affected the cryptocurrency market and what consequences founder Sam Bankman-Fried faced.
FTX was the third largest cryptocurrency trading platform, and its user base crossed the one million milestone. The estimated value of the exchange was more than $30 billion. Obviously, investors, among which were quite large investment companies, trusted FTX and its founder Sam Bankman-Fried.
The first doubts in the company began on November 2 — CoinDesk journalists said that almost half of the cryptomillionaire's fortune consists of tokens that were issued by his own exchange. This raised questions about the sustainability of the entire system, and the founder of Binance said that his company was going to sell a large package of FTT tokens. Even in this situation, the FTX founder continued to argue that this was all a rumor and that the situation was under complete control.
Binance was planning to buy competitor FTX, but after a number of checks changed its attitude and broke the preliminary agreements. Also, the news about possible wasting of investors' funds on non-target directions contributed to the disruption of the deal. Obviously, Binance was not going to solve a number of problems instead of Bankman. The negative background created around FTX was the reason the cryptocurrency market began to rapidly lose money. Bitcoin “sank” in price to record levels over the past two years, and other cryptocurrencies lost value after it.
Infographics: Bitcoin value from 1.11.22 to 16.11.22 according to CoinDesk
The Financial Times did its own research, which found that FTX had $900 million in liquidity with $9 billion in liabilities. Also, in addition to all the aforementioned problems, Reuters reported that at least $1 billion had been withdrawn from customer accounts. According to them, Sam Bankman-Fried moved $10 billion from the exchange in his other company, Alameda Research. At the same time, between $1 billion and $2 billion disappeared. Although the transfer of these funds is a well-known case, the missing billions caused another negative wave around FTX. Information about the fraud did not go unnoticed by law enforcement agencies — on November 10 it became known that the U.S. Department of Justice was interested in the situation.
The reasons for all these economic miscalculations and unconfirmed tokens may be Bankman-Fried's desire to help other loss-making cryptocurrency exchanges through the cryptocurrency value drawdown. Such unconsidered steps could well lead to problems already in the company itself, including a lack of liquidity. After these events, users began withdrawing money from other cryptocurrency exchanges, including giants Binance, Coinbase, Gemini, and Kraken. In all likelihood, we should expect a chain of new crisis situations on other exchanges following FTX, because this “storm” may be just the beginning.
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