FTX, a cryptocurrency exchange was founded in the year 2019 by Sam Bankman- Fried. Fast forward to the year 2021, FTX had more than 1 million users and emerged as the third-largest crypto exchange by volume. However, this renowned exchange and the trading firm have been in chapter 11 bankruptcy proceedings in the US Court. Following this, its CEO and founder Sam Bankman – Fried resigned too. Bankman used aggressive marketing to promote FTX and was also known for political lobbying, donations, and supporting the cryptocurrency industry. However, all these attempts to promote FTX seem a big failure. Is it just a misfortune or a planned strategy, let’s find out.
What Went Wrong With FTX?
FTX”s collapse was predicted around November 2, when Alameda Research, the quant trading firm that is also run by Sam Bankman – Fried was found to hold a position worth $ 5 billion in FTX’s native token, FTT. This report prompted concern about the undisclosed leverage and solvency status of the Bankman – Fried companies. Exactly after 10 days after the event, FTX filed for bankruptcy protection and confirmed that some unauthorized access to its accounts led to the theft of funds. However, the social media debates see this as a suspicious and unclear statement and speculate that the company insider must have stolen the funds. However, no clarity on the matter has been issued. According to the estimation of analytics firm Elliptic, around USD 477 million of funds were missing from the exchange.
FTX’s Assets Were Frozen
Following the news that the Bahamian subsidiary was seeking up to $ 8 billion in capital to bail out an exchange. The Bahamas Securities Regulator also froze the assets of FTX Digital Markets. Furthermore, the California Department of Financial Protection and Innovation also started to investigate FTX Financials Operations. As a result, of growing concern about FTX’s funds’ insufficiency and liquidity Bankman– Fried publicly apologized for FTX’s crisis and stated that the exchange has insufficient funds to meet customer demand. The founder stated this was the result of “poor internal labeling” where FTX financials were miscalculated.
Did FTX Miss Binance Deal Too?
Post–filing liquidity protection FTX’s founder attempted to reassure FTX investors of the stability of its assets. However, its customers started to flee the exchange over fears due to its uncertain liquidity position and disparity in capital disclosure. As a result, its customers started to demand withdrawal worth $ 6 billion immediately after the Coin Desk’s report on Alameda Research which led FTX to look for additional funds from Venture Capitalist. This complete scenario resulted in an 80% decline in its native token’s value.
However, on November 8 Binance declared that it plans to establish a non–binding agreement for buying FTX for an undisclosed sum. However, the scrutiny of their balance sheet which was misleading led to the deal cancellation. Alongside, according to its bankruptcy filing, it was found that FTX valued its assets worth $ 10 billion to $ 50 billion and had more than 130 affiliated companies listed with them. Thus, clearly, FTX missed the Binance deal too, which could have acted as a rescue for its brand value.
Other Repercussions of FTX’s Bankruptcy
The shocking event of FTX, the world’s third-largest crypto exchange bankruptcy has led shook the entire cryptocurrency industry. As a result, a huge movement in the industry was witnessed which led to the occurrence of the following events.
- Companies that backed FTX are now writing down their investments which resulted in falling prices for Bitcoin and other digital currencies.
- The NBA’s Miami Heat and Miami – Dade County also plan to terminate their relationship with FTX and rename their team arena.
- Mercedes has also decided to remove FTX logos from their Formula One (F1) cars.
- The Securities Commission of Bahamas (SCB) took the control of FTX’s cryptocurrency assets and instructed Bankman – Fried to move crypto assets to the regulator wallet to safeguard creditors’ interest.
In the midst of the ongoing investigation and liquidity concerns, the future of FTX is difficult to assess and has become a big question too. However, the withdrawal and cancellation of the partnership agreements and all forms of relationship with the exchange by several companies and celebrities are indicating its end.