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FTX, which was once one of the largest cryptocurrency exchanges, now valued at essentially nothing

In the business world, the rearview mirror is always clearer than the windshield.” Warren buffet


In the fast-paced world of cryptocurrency, vast sums of money can be made or lost in the blink of an eye. In early November 2022, the second-largest cryptocurrency exchange, FTX, was valued at more than US$30 billion and is now essentially worth nothing.

Sam Bankman-Fried founded FTX, a cryptocurrency exchange where many crypto investors trade and hold their cryptocurrency. Bankman-Fried is also the founder of Alameda Research, a hedge fund that trades and invests in cryptocurrencies and crypto companies. Before November 2022 these two companies would be separate firms entirely or at least have divisions and firewalls in place between them But On 2nd November, a piece of news broke out by Crypto news website CoinDesk reported a leaked balance sheet that showed Alameda Research, Bankman-Fried's crypto trading firm, was heavily dependent on FTX's native token, FTT. FTX had allegedly been loaning customer deposits to Alameda for making risky investments without the consent of the customers and also issuing its own FTX cryptocurrency for Alameda to use as collateral later on Alameda lost the deposits of customers in trade due to risky investments and there just numbers were reflecting on users FTX display, in the backend, there was no money as the money was channelized to Alameda for trading purpose and it’s illegal. On November 6, Binance CEO tweeted that his firm would liquidate the entire 20% of its holdings of FTT due to a recent revelation. This created panic in the crypto market and then everyone started liquidating their holdings from FTT Because Binance has a huge chunk of FTT holding and if they started liquidating their holdings then there would be a downfall in the value of the FTT token so Large crypto investors, like FTX’s competitor, as well as individuals, began to sell off cryptocurrency held on FTX’s exchange. On 8 November, FTT collapses by 72% as clients swamp the exchange with withdrawal requests. That same day, FTX, Alameda Research and 130 other affiliated companies founded by Bankman-Fried filed for bankruptcy. FTX was also hit by an apparent insider hack and lost $600 million worth of cryptocurrency. In October 2022, Sam had an estimated net worth of $10.5 billion However, on November 8, 2022, amid FTX's solvency crisis, his net worth was estimated to have dropped 94% in a day to $991.5 million. FTX quickly lost its ability to meet customer withdrawals and halted trading. And that's how all these events led to the dramatic downfall of 2nd largest crypto exchange.

A bigger implication that can be drawn is that the potential investors lost trust in crypto as Bankman-Fried and FTX were seen as some of the biggest, most trusted figures in crypto, these events may lead more investors to think twice about putting money in crypto.

The takeaway for most individuals is not to invest in unregulated markets without understanding the risks. In high-risk environments like crypto, it’s possible to lose everything – a lesson investors in FTX are learning the hard way.


DID YOU KNOW :-

In the beginning Binance decided to pursue the non binding agreement to bail out FTX so that they can support FTX’s customers to provide liquidity but later on during corporate due diligence they found out that the issues are beyond their ability then they back off from the deal and decided not to pursue the potential acquisition.


SUMMARY


In the fast-paced world of cryptocurrency, vast sums of money can be made or lost in the blink of an eye. In early November 2022, FTX, was valued at more than US $30 billion and is now essentially worth nothing.

Sam Bankman-Fried, the founder of FTX, is also the founder of a hedge fund popularly known as Alameda research. On 2nd November, a piece of news broke out by Crypto news website.

On November 6, Binance CEO CZ tweeted that his firm would liquidate the entire 20% of its holdings of FTT due to a recent revelation of Alameda using FTT as collateral and making risky investments without consent of customers.. This created panic in the crypto market and then everyone started liquidating their holdings from FTT. On 8 November, FTT collapsed as clients swamped the exchange with withdrawal requests. FTX quickly lost its ability to meet customer withdrawals and halted trading. FTX, Alameda Research and 130 other affiliated companies filed for bankruptcy, and that's how all this led to the dramatic downfall of the 2nd largest crypto exchange.






















BY:

Pranuj Gupta

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