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FTX, one of the world’s biggest cryptocurrency exchanges, has gone bankrupt, leaving an $8 billion (£6.8 billion) deficit on its balance sheet. 2022 will undoubtedly be remembered as one of the most critical and essential formative years for the cryptocurrency business.
The repercussions of FTX’s quick slide and collapse will almost certainly have an influence on cryptocurrencies in the future and may even bring down larger markets.
Before starting to have a look at the facts of FTX collapse, let’s get some knowledge over what FTX exactly is?
What Exactly is FTX?
The FTX cryptocurrency is a crypto exchange that was created in the Bahamas in the year 2019 by Sam Bankman-Fried. This exchange allows users to purchase, sell, hold, and trade cryptocurrencies very easily.
Bankman-Fried was the firm’s CEO from its founding until it declared bankruptcy. Following Bankman resignation, Fried’s John J. Ray III was appointed to assist and guide the corporation through a substantial reorganisation process.
How did FTX Collapse within 10 days?
The fall of FTX occurred during a 10-day period in November 2022. The issue was triggered by a CoinDesk report on Nov. 2 that showed Alameda Research, the quant trading business also managed by Bankman-Fried. It had a $5 billion stake in FTT, the native token of FTX.
According to CoinDesk, Alameda Research depended primarily on FTX’s native FTT coin, which accounted for the bulk of its assets on Alameda’s financial sheet.
Concerns have been raised concerning the two firms’ interconnected existence and their ability to affect – and artificially inflate – the value of FTT, providing new hurdles for Bankman-Fried.
Following this revelation, Changpeng “CZ” Zhao, the CEO of the crypto exchange Binance, declared his intention to liquidate Binance’s FTT holdings, pushing terrified investors to withdraw their assets from FTX.
As a consequence, the bank experienced a run, with FTX processing more client withdrawals than it could afford, and ultimately did put a ban on the withdrawals to curb the climbing loss of value. However, by that time, the value of FTT had collapsed rigidly. It peaked at over $50 in March before falling to a little over $1 at the time of writing.
As we gain an overview of the incident, let’s break the entire collapse into day-wise fluctuations.
Unfolding the Truth: What caused the Collapse of FTX?
2nd November 2022:
Alameda held billions of dollars worth of FTX’s own cryptocurrency, FTT, and had been using it as collateral in further loans. This meant a fall in FTT’s value would hurt both firms, given their shared ownership.
4th November 2022:
Referring to the ownership of a portion of FTT assets. It went on to say that it was almost as if Sam Bankman-Fried discovered a method to hack the financial system, producing billions of dollars to borrow large amounts from unknown counter parties.
6th November 2022:
The news of Alameda Research’s extremely leveraged bets on crypto tokens established by its sister firm, FTX exchange, spread like wildfire across the crypto industry.
Binance was an early investor in FTX and held a large number of FTT tokens on its balance sheet. However, the gavel has already fallen, and Binance’s Changpeng Zhao has stated that all FTT tokens on Binance’s books would be sold.
7th November 2022:
Following this, Sam Bankman-Fried responded with a series of tweets stating that the opponent was attempting to go after them with fake rumors. He went on to firmly reject all of the claims raised against him and his firms, FTX and the trading company Alameda Research.
8th November 2022:
In less than 24 hours, the FTT token dropped approximately 75% of its value. FTT’s value went below $22, showing that they were unable to maintain the value of their token on the open market.
On the same day, Binance co-founder and CEO – Changpeng Zhao – declared his plan to purchase the FTX exchange in order to assist customers who were trapped on that exchange. This action would have effectively removed one of its market’s biggest rivals.
11th November 2022:
Within a few hours of closing its trading business, Alameda Research, on the 11th of November signaled the end of the FTX crash.
28th November 2022:
As a result of the FTX collapse, prominent crypto lender BlockFi has filed voluntary lawsuits in New Jersey under Chapter 11 of the US Bankruptcy Code. According to the press statement, the company was significantly harmed by the FTX collapse since its exposure to FTX caused a liquidity issue.
Conclusion:
Cryptocurrency is still a relatively young and fragile business with a lot of possibilities for development in the future. Before investing, investors should be informed that it is an extremely volatile market, maybe the most volatile of any asset classes available in today’s world.
Not only did the FTX collapse result in a large loss for investors, but several big players in the crypto sector and other exchanges linked to the firm were also affected and had to endure heavy casualties.
It is also important to remember that we are presently in a bear market, which means that many of the goods that worked successfully during the bull market will fail now.
However, it is critical that investors learn from these errors and do extensive research before investing in the cryptocurrency market.
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