A global cryptocurrency exchange called FTX has filed for bankruptcy after losing billions of dollars in customer assets and a failed acquisition deal with Binance. After transferring user funds to its sister company Alameda Research, the corporation lost up to $2 billion.
Authorities are investigating the company to determine if any criminal misbehaviour has taken place. This only makes matters worse. After FTX collapsed, the cryptocurrency market lost billions of dollars in value and fell below $1 trillion.
The collapse of FTX may hurt cryptocurrencies for a long time and even result in wider market losses. Here are the details of what happened and how it relates to cryptocurrencies.
FTX: What is it?
The FTX exchange is one of the largest cryptocurrency exchanges in the world. In addition to trading digital currencies, customers can also exchange traditional cash for digital currencies. The Bahamas was the headquarters of the firm, which was managed by Bankman-Fried. The currency's backers have spent millions of dollars lobbying American lawmakers to pass laws friendly toward cryptocurrency.
The Tale of FTX's Insolvency
On Friday, FTX Inc. and Bankman-Fried filed for bankruptcy protection, ending a turbulent week. FTT, the traditional token of FTX decimated in a massive sell-off last month, is at the centre of an ongoing controversy.
FTX attempted to sell its operating business to rival Binance after a surge of withdrawals put FTX in danger. The deal was announced almost exclusively on Twitter and could have gone better. However, the company backed out when Binance offered its rescue strategy and acquisition.
Binance CEO Changpeng "CZ" Zhao announced on Twitter that the company would not go through with its plan to buy FTX.com due to concerns over corporate governance issues. The breaking news stories about cases of mishandling client cash, suspected U.S. government investigations, and fraud in the Middle East war.
In a November 10 tweet responding to Binance's recent actions, Bankman-Fried said he would have more to say about "a specific sparring partner" later. All I will say is: "Well played—you won!"
Within days, the multibillion-dollar cryptocurrency exchange collapsed in a stunning fall from grace. "I would like to assure everyone that we will handle this work with diligence, completeness, and clarity, the new FTX CEO said."
Freezing of FTX Assets and Other Consequences
According to a recent report, Bankman-Fried needed up to $8 billion in funding to keep the trade running. On the other hand, the Security Commission of the Bahamas froze the wealth of FTX in November.
The California Department of Financial Protection and Innovation confirmed it had started an inquiry into FTX. In a tweet, Bankman-Fried apologized for the lack of liquidity problems they were creating and said that he was working to fix them.
Bankman-Fried said that FTX's calculation of leverage and liquidity had been incorrect due to "bad internal labelling." He stated in the same post that Alameda would stop trading.
Former CEO Sam Bankman-Fried resigned on November 11 after leading the company through bankruptcy. John J. Ray III was appointed his replacement as chief executive officer.
The lawsuits also included about 130 additional companies. A bankruptcy filing shows FTX has wealth between $10 billion and $50 billion and liabilities between $10 billion and $50 billion.
Crisis in FTX liquidity and Binance Deal
On November 6, Binance announced it would sell 23 million FTT tokens for about $530 million. In a statement after the collapse of Terra's LUNA token, Binance CEO Changpeng Zhao said risk management was behind his decision to liquidate the exchange's stake in FTT.
The following day, FTX was in trouble because of a liquidity crisis. Bankman-Fried tried to reassure investors in FTX that their assets were secure, but after the CoinDesk revelation, consumers demanded withdrawals totalling $6 billion. Bankman-Fried looked to venture capitalists for funding, but FTT's value dropped by 80% in just two days.
'Unauthorized Transactions' on FTX
As a result of "unauthorized transactions," FTX will move its digital assets to cold storage, though it did not explain how this will increase security. Researchers suspect that the alleged attack may have stolen $477 million from FTX.
The Securities Commission of the Bahamas seized an exchange that had gone out of business on November 18. Taking action to protect creditors, the SCB ordered Bankman-Fried to transfer his cryptocurrency holdings to its wallet.
Final Words
The bankruptcy of a company, the loss of billions in shareholder value, and government inquiries into corporate practices have all resulted from FTX's accident. The assets of FTX have been frozen, and its remaining users will probably receive compensation after all legal claims are satisfied.
