FTX’s unexpected collapse left the cryptocurrency market and its investors reeling. Here’s a timeline of how this all happened.
FTX is a cryptocurrency exchange based in the Bahamas. It was founded by Sam Bankman-Fried in 2019 and lets users buy, sell, hold, and trade cryptocurrency (although those functions aren’t available right now due to the firm’s collapse).
Before we dive into the fall of FTX, let’s rewind a bit. The cryptocurrency industry as a whole has faced a number of challenges this year. An uncertain economy coupled with the collapse of the Terra protocol, which powered the TerraUSD stablecoin and its sister token Luna, set off a domino effect that caused several other firms to go under throughout 2022.
This so-called “crypto winter” culminated in numerous companies, including Three Arrows Capital, Celsius, and Voyager Digital, filing for bankruptcy over the summer. While things were still looking peachy for FTX at this point — in fact, Bankman-Fried burnished his reputation by publicly attempting to bail out other struggling crypto firms — this didn’t last very long.
When did things take a turn for FTX?
Things began to sour for FTX when CoinDesk published a damning report about Alameda Research, the crypto trading firm also owned by Bankman-Fried. According to CoinDesk, Alameda Research relied heavily on FTX’s native FTT token and made up the majority of its assets on Alameda’s balance sheet.
This raised concerns about the intertwined nature of the two businesses and their potential to manipulate — and artificially inflate — the value of FTT, spelling even bigger problems for Bankman-Fried. After this came to light, Changpeng “CZ” Zhao, the CEO of the crypto exchange Binance, announced his plans to sell Binance’s FTT holdings, causing panicked investors to withdraw their funds from FTX.
The result was a run on the bank that had FTX processing more customer withdrawals than it could actually afford. FTT has since plunged in value. It reached a peak of around $50 in March before dropping to a little over $1 at the time of writing.
FTX and Alameda Research filed for Chapter 11 bankruptcy on November 11th, and that’s also when Bankman-Fried stepped down as CEO. The filing reveals a number of internal issues at FTX, including the possibility that the company has not even verified the number of users on its platform and that it doesn’t possess an “accurate list of bank accounts and account signatories,” which is… pretty bad.
Subsequent court filings, such as the one that details all the entities that FTX and Alameda Research owe money to, also reveal some questionable activity. The filing states that Alameda owes its top 50 creditors over $3 billion.
Let’s not forget about that wave of “unauthorized” transactions that robbed FTX of an additional $477 million (that the thief continues to launder). We still don’t know who’s behind the theft, but some skeptics believe it was an employee on the inside of FTX.
Source: theverge.com
Free legal advice
We advise everyone to be careful with their investments. Current markets are adversely affected by a plethora of unfavorable events creating a perfect storm that wiped out many of the “crypto giants.” The market will be unstable, and crime will come with uncertainty and lose regulations. Research every crypto company thoroughly before investing, and at least for now, be conservative and careful with your money.