FTX went from being the third largest cryptocurrency exchange in the world to bankruptcy in just one week, rocking the entire cryptocurrency market, shocking investors, and leaving people trading through the exchange with a long and arduous path to try to get their money back.
Today, cryptocurrency prices fell again as the FTX bankruptcy crisis worsened over the past few days, as Bitcoin – the largest cryptocurrency in the world – has fallen by about 65% this year, and is trading today, Monday, at a price of approximately 16,500, according to CoinDesk data, analysts believe. It may drop to less than $10,000 over the coming days.
at the same time; The situation of Ethereum – the second most valuable cryptocurrency in the world – is not much better, as CoinDesk data showed that it is trading today at $ 1231.53 today, after falling by more than 20% over the past week.
This decline comes as investors continue to grapple with the unprecedented collapse of the FTX group, as some industry analysts said: “The company’s collapse caused the “Lehman Brothers collapse moment,” referring to the bank’s 2008 collapse 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 protection measures from creditors in accordance with the US bankruptcy law last Friday, and (Sam Bankman-Fried), its founder, resigned from the company’s presidency, to witness the cryptocurrency market a strong hit that it had not seen 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.”
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 the CEO of Alameda Corporation, FTX Group Sam Trabuco, and one month later Brett Harrison resigned from his position as President of FTXUS.
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 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 few days, as the Bahamas government has launched an investigation into what the (FTX) group has done until it reached such a collapse, which revealed new facts.
Bankman-Fred moved FTX’s headquarters from Hong Kong to the Bahamas last year, which he hailed as “one of the few places to establish a comprehensive cryptocurrency framework” at the time. Yesterday, authorities in the Bahamas said they and a team of financial investigators from the Financial Crimes Investigation Branch are investigating possible criminal conduct surrounding the collapse of FTX.
Multiple sources including ( Ren Miller ) General Counsel for FTX Group, and reports from The Wall Street Journal reported that at least $477 million was stolen from FTX hours after filing for bankruptcy, as it allegedly let large transfers pass unnoticed. Unnoticed, which further affected the losses incurred by investors.
With increasing scrutiny of big companies in the cryptocurrency market, another major incident has investors worried, as Singapore-based company Crypto.com admitted to mistakenly sending more than $400 million in Ethereum to the wrong account.
“The transfer of 320,000 ETH took place three weeks ago to a company account in the competing exchange Gate.io, rather than one of its offline wallets,” CEO Chris Marsalek said yesterday via Twitter. Despite the refund, users are withdrawing from the platform, fearing the same outcome as FTX.
The Cyprus Securities and Exchange Commission announced that it had suspended FTX’s license, which allows it to operate in Europe, due to suspicions of violating several laws, and stated that the company did not seem to comply at all times with the terms of the license.
Other alleged violations included laws relating to the sustainability of management members, and FTX’s preservation of clients’ assets.
It is worth noting that FTX’s bankruptcy application will allow it to continue working while developing a plan to pay off its debts, but it is not clear what will happen with Bankman-Fred, who has appointed a lawyer to defend him, but investigations are still ongoing.
What is clear so far, however, is that the FTX bankruptcy highlights cryptocurrency’s structural challenges in terms of transparency and mismanagement of risk that have repeatedly led to losses for investors, and rather than revolutionizing the world of finance, cryptocurrency exchanges are largely repeating the same mistakes.
