In just one week, FTX went bankrupt, going from being the third largest cryptocurrency exchange in the world to being unprofitable. This shook the entire cryptocurrency market, shocked investors, and made it difficult for people who traded on the exchange to get their money back.
Today, cryptocurrency prices have fallen again as the FTX bankruptcy crisis worsened over the past days, with Bitcoin - the world's largest cryptocurrency - down about 65% this year, and trading Monday at around 16,500 according to CoinDesk data, analysts believe. It may drop below $10,000 over the coming days.
at the same time; The situation for Ethereum - the world's second most valuable cryptocurrency - is not much better, with CoinDesk data showing that it is trading at $1,231.53 today, after falling more than 20% over the past week.
This decline comes as investors continue to grapple with the unprecedented collapse of the FTX group, with some industry analysts saying: “The collapse of the company caused the “moment of the collapse of Lehman Brothers,” referring to the bank’s collapse in 2008 that caused a crisis. global finance.
So what happened and how did the FTX exchange collapse in this way?
The group that owns the cryptocurrency exchange (FTX) said it started bankruptcy protection measures against creditors last Friday, and its founder, Sam Bankman-Fred, resigned from the company's presidency, sending the cryptocurrency market a hit like never before. .
In a post on its Twitter account on Friday, the company said: “West Realm Shires Services, Alameda Research, and about 130 affiliated companies - all of which make up the FTX Group - have voluntarily applied for protection from Creditors under Chapter 11 of the US Bankruptcy Code in the Delaware area, in order to begin the valuation and liquidation of the Group’s assets for the benefit of global stakeholders.”
Press Release pic.twitter.com/rgxq3QSBqm
— FTX (@FTX_Official) November 11, 2022
The sudden and rapid collapse of the FTX exchange came just one day after its rival Binance - the largest cryptocurrency exchange - suddenly decided to withdraw from its acquisition of (FTX) which is facing a liquidity crisis.
Binance backed out of the non-binding deal after looking at the FTX exchange's records, at which point it became clear that FTX's problems were too big to be resolved with a takeover deal.
FTX CEO Sam Bankman-Fred warned investors last week that without an $8 billion cash injection, the company might have no choice but to file for bankruptcy, and did not explain the reason behind the shortfall.
What is the FTX exchange?
FTX is a cryptocurrency exchange, which means that it enables consumers to buy, sell and store digital currencies such as Bitcoin and Ethereum, as well as other digital assets such as: NFTs.
This company was founded by Sam Bankman-Fried in 2019, and as of February 2022 it has over 1 million users.
FTX and Binance handled the vast majority of cryptocurrency trading worldwide before the start of FTX's bankruptcy proceedings last Friday, according to crypto market data tracker CoinMarketCap.
30-year-old businessman Sam Bankman-Fred has built a $32 billion FTX empire over the past three years and served as CEO of FTX until last Friday.
Exchange (FTX) seemed to be one of the best-running brokers in the cryptocurrency market, as Bankman-Fred presented himself as the savior of crypto companies that faltered this year with the collapse of the Luna cryptocurrency, buying up competitors and bringing their clients to his exchange.
When did the collapse start?
Despite the apparent successes, there were a lot of problems starting to emerge with the sudden resignation of CEO of Alameda Corporation, FTX Group Sam Trabuco, and one month later Brett Harrison resigned from his position as President of FTXUS.
1/ An announcement: I’m stepping down as President of @FTX_Official. Over the next few months I’ll be transferring my responsibilities and moving into an advisory role at the company.
— Brett Harrison (@BrettHarrison88) September 27, 2022
These resignations occurred before it was revealed that the (FTX) Group was facing some legal problems in the form of an organized investigation of securities, and then the acquisition of Benas Group on the group revealed other problems in the accounts, and the management of clients' assets.
The Wall Street Journal reported last Thursday that the (FTX) meltdown was preceded by a decision to lend billions of dollars in clients' assets to fund risky bets to Alameda - FTX's crypto hedge fund - and all this news prompted a broad investigation into the exchange's practices.
As WSJ reported: The CEO of Alameda and senior officials at FTX were aware that the company had lent its clients money to Alameda to help it meet its obligations, and Alameda also received many requests from lenders after the collapse of the crypto hedge fund (Three Arrows Capital) in June, which Causing losses to crypto brokers such as: (Voyage Digital).
Accordingly; The Wall Street Journal reports that the Department of Justice and the Securities and Exchange Commission are investigating the collapse of FTX. The Justice Department declined to comment, and the Securities and Exchange Commission said it does not comment on whether or not there are investigations.
Bankman-Fried is a staunch advocate of the cryptocurrency industry and a major supporter of the current ruling Democratic Party in the United States, donating nearly $50 million to the US midterm elections, but the internal collapse of the FTX exchange has drawn scrutiny from the Biden administration and top Democratic lawmakers who criticized FTX and called for more oversight of the crypto industry.
Bankman-Fried's $15.6 billion fortune has evaporated as of Monday, according to the Bloomberg Billionaires Index, making him one of the world's 100 richest people. But on Friday, the Bloomberg Index estimated his net worth at zero.
Possible penetration:
Things have evolved over the past days, as the Bahamian government launched an investigation into what the FTX group did until it collapsed like this, revealing new facts.
Bankman-Fred moved FTX's headquarters from Hong Kong to the Bahamas last year, hailing it as "one of the few places to create a comprehensive cryptocurrency framework" at the time. Yesterday, authorities in the Bahamas said they are investigating a team of financial investigators from the Financial Crime Investigation Branch for possible criminal conduct surrounding the collapse of FTX.
Multiple sources also reported, including: FTX Group General Counsel Ryan Miller, and reports from the Wall Street Journal that there were at least $477 million stolen from FTX hours after filing for bankruptcy, allegedly letting large transfers go unchecked. Unnoticed, which further affected the losses incurred by investors.
With increased scrutiny of the majors in the cryptocurrency market, another major incident has alarmed investors, with Singapore-based Crypto.com admitting to mistakenly sending more than $400 million worth of ethereum to the wrong account.
“The transfer of 320,000 ETH was made three weeks ago to a company’s account at the (exchange Gate.io) competitor, rather than one of its offline wallets,” the company’s CEO (Chris Marsalek) said yesterday via Twitter. Despite the refund, users are withdrawing from the platform out of fear of the same outcome as FTX.
The Cyprus Securities and Exchange Commission has announced that it has suspended the FTX license that allows it to operate in Europe due to suspected violations of several laws, and stated that the company does not appear to comply at all times with the terms of the license.
Other alleged violations included laws relating to the sustainability of members of the management, and FTX maintaining assets owned by clients.
Notably, FTX's bankruptcy filing will allow it to continue working while it develops a plan to repay its debts, but it's not clear what will happen with Bankman-Fried, who has hired a lawyer to defend him, but investigations are ongoing.
But it is clear so far, that the bankruptcy of FTX highlights the structural challenges of cryptocurrencies in terms of transparency and mismanagement of risks that have repeatedly led to losses for investors, and instead of revolutionizing the world of finance, cryptocurrency exchanges are largely repeating the same mistakes.
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