Everything You Need To Know About FTX Collapse

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FTX is one of the major exchanges where digital asset authorities. Market analysts have praised it for being one of the most transparent and best for cryptocurrency businesses.

On November 11, 2022, FTX, a large cryptocurrency exchange, and its US subsidiary, FTX.US, filed for Chapter 11 bankruptcy. The Bahamian authorities arrested and extradited to the United States Sam Bankman-Fried, the former founder and CEO, also known as SBF. And, where he later pleaded not guilty to eight criminal counts, including wire fraud and conspiracy to deceive investors.

FTX’s meltdown had far-reaching consequences for the crypto industry. Moreover, as best crypto exchanges having exposure to FTX or its native token, FTT, saw falling prices and financial difficulties. FTX is the third-largest bitcoin trading platform in the world, filed bankruptcy today. What caused it, and what does it mean for the future of cryptocurrencies?

Let’s find out.

The Expansion of FTX Collapse

FTX swiftly grew to dominate its industry by making high-profile acquisitions of failing competitors including Liquid Global, LedgerX, and Blockfolio. FTX employed strong marketing strategies, including Super Bowl advertising, celebrity endorsements, and naming rights to the Miami Heat’s arena. Although, some marketing campaigns claimed that customers could deposit their money into these accounts and receive better returns than the usual bank.

Cryptocurrency began to flourish in early 2021, with the price of Bitcoin reaching $64,000, up from $10,000. Customers began to take notice, and venture capital firms invested about $2 billion in FTX.

What is FTX collapse?

FTX is one of the world’s biggest cryptocurrency exchanges. Nevertheless, it allows consumers to convert digital currencies into other digital currencies or traditional money, and vice versa. It has spent millions of dollars pushing U.S. politicians to enact regulations.

The company has structured its business on hazardous trading options that are not authorized in the United States. In fact, the cryptocurrency business has come under increased regulatory scrutiny on Capitol Hill and throughout the world.

The FTX platform supports a variety of trading products, including leveraged tokens, volatility products, and derivatives like options and futures. For this reason, the exchange offers over 100 cryptocurrency trading pairs, providing trading opportunities in the spot market. 

The collapse of FTX enables financial transactions between fiat money and stable cryptocurrencies like Ethereum, Bitcoin, and Litecoin. In addition, while also offering access to the finest spot trading strategies. 

FTX’s trading services help institutional and individual traders diversify their cryptocurrency trading portfolios. The trading platform offers a wide range of trade options and items. Experienced traders intend to maintain commitment to the market using FTX services.

To put it another way, the platform caters to experienced traders. The platform does not hesitate to be clear and honest about how it operates. Users on FTX can use US dollars to pay for futures trades. Most importantly, this means that the platform makes around $300 on $9,000 transactions. All deals made on the FTX cryptocurrency. As a consequence, the platform may continue to operate and generate revenue.

“FTX’s valuation peaked at $32 billion, with FTX America valued at $8 billion after obtaining $400 million from investors in January 2022.”

What happened with the FTX collapse?

FTX was a major cryptocurrency exchange that went bankrupt in November 2022 following charges that its founders embezzled and abused user monies. FTX became insolvent and declared bankruptcy after a large number of investors and consumers took their monies out of the exchange. 

The discoveries sparked widespread worry in the cryptocurrency sector that FTX was reliant on Alameda Research, relied on questionable financial accounting standards, and faced associated financial management concerns.

Buy FTX stock and Blockfi works?

Although FTX equity was not accessible for public trade, most individual investors may participate in the exchange by purchasing the FTX token (FTT) exchange. 

As of April 12, 2024, the price of the FTT token was around $1.60, down 98% from its peak in September 2021. According to cryptocurrency website CoinMarketCap, the token “no longer has any use, and the estate may liquidate it to pay creditors.”

What do we know about its bankruptcies?

FTX declared bankruptcy at the end of last week, after Binance changed course on an agreement to salvage the firm. This investor uses the coin for transaction fees and margin collateral in cryptocurrency marketplaces, just like trading a stock.

Mr. Ray, the new FTX CEO, filed for bankruptcy on Thursday, citing multiple organizational errors, including the employment of software to “conceal the misuse of customer funds.” Moreover, Mr. Ray also stated in the complaint that he did not believe the financial statements compiled under Mr. Bankman-Fried’s guidance were accurate.

The funds of hundreds of thousands of consumers who put their securities on the FTX platform are at risk. So far, Mr. Ray’s team has obtained around $740 million in bitcoin belonging to segments of FTX’s company, an amount he described as “only a fraction” of what he was hoping to recover.

Why did the FTX collapse?

FTX’s issues worsened early in November, and things quickly spiraled out of hand. According to a leaked balance sheet obtained earlier this month by the crypto news website CoinDesk, Alameda Research, SBF’s cryptocurrency trading firm, is heavily reliant on FTX’s native token, FTT. Most importanlty, a few days later, Binance CEO Changpeng Zhao declared that the business will liquidate its FTT holdings due to “recent findings.”

SBF originally defended FTX, claiming that everything was well with the deal. However, when clients rushed to withdraw their funds on November 8, the value of FTT dropped 72%.

Here’s a more detailed explanation:

  • On November 6, Binance and Changpeng Zhao chose to liquidate their FTT holdings, bringing comparisons to the TerraUSD catastrophe. Binance had previously invested in FTX, and upon its sale, it acquired a minor amount of FTT tokens. As a result, fear ensued, and FTT prices began to tumble.
  • Caroline Ellison, CEO of Alameda Research, expressed an interest in acquiring the ones CZ was selling.
  • Binance stated on november 8th that it was in talks to purchase FTX.
  • Binance opted against pursuing a non-binding agreement to preserve FTX on November 9.
  • FTX discontinued accepting new clients and processing withdrawals until further notice on November 10.
  • On November 10, Bankman-Fried notified his colleagues in a letter that he was attempting to raise funds and had communicated with Justin Sun, the founder of the cryptocurrency token Tron. Likewise, Reuters reported that Bankman-Fried is seeking to put together a rescue plan for FTX that might cost $9.4 billion.
  • The FTX collapse concluded on November 11, just a few hours after its trading business, Alameda Research, suspended operations. 

In a formal press statement, FTX announces that it has chosen to file for Chapter 11 bankruptcy protection under the United States Bankruptcy Code. In order to begin a systematic review and monetization of the company’s residual assets for the benefit of all global stakeholders.

Within hours after declaring bankruptcy, FTX said it had been the victim of “unauthorized transactions” and would move its digital assets to cold storage for security concerns. According to independent analysts, the claimed hack might have resulted in the theft of $477 million from FTX.

On November 18, the Securities Commission of the Bahamas (SCB) took control of the defunct FTX exchange’s digital currency assets. To safeguard creditors, the SCB said it instructed Bankman-Fried to move bitcoin assets to the regulator’s wallet.

Will they be repaid their money to FTX customers?

Some customers will receive some of their money back, but no one will receive the entire amount. Even Bankman-Fried believes it would require a $8 billion capital infusion to completely compensate all depositors. 

Future of FTX Collapse

The bigger implications of FTX’s downfall for the cryptocurrency sector will take time to play out, but fissures have already appeared. As the greatest failure of an exchange in the brief history of cryptocurrencies, FTX has discouraged cautious investors from remaining in the industry, and business partners owed money have shut down.

Crypto Contagion

Cryptocurrency exchanges shrunk as a result of an increase in client withdrawals. FTX’s bankruptcy has led to the bankruptcy of cryptocurrency lenders and banks, including BlockFi, Genesis Global, Celsius, and Voyager Digital. As a result, FTX and Alameda Research received undercollateralized loans without considering the repayment risk profile.

Regulatory Crackdown

Regulators have advocated for increased government regulation of cryptocurrency. Alike, law enforcement has increased inspection of cryptocurrencies, both locally and globally, in an effort to limit exposure to traditional markets. Members of Congress have stated that they are more likely to enact additional protections for digital tokens and exchanges.

Asset Recovery

Investors and consumers may be unable to fully recover their investments from FTX. Creditor claims are subject to the slow-moving bankruptcy estate process at a large discount to their principal, depending on how much money the bankruptcy trustee is able to recover. These tactics have included tracking down where bitcoins etf went, requesting that politicians refund political donations, and suing for assets ranging from business partners to Bankman-Fried’s parents, who got presents from their son.

FTX 2.0

FTX’s website is now offline, however there are plans for a restructure and relaunch under new management. At least three firms are competing to take over and restart the defunct exchange. FTX began recruiting customers as early as June 2023.

The impact of FTX collapse on the cryptocurrency industry

The demise of FTX had a tremendous influence on the cryptocurrency market. It caused a dramatic drop in the price of Bitcoin and other cryptocurrencies. For example, Bitcoin’s price dropped from $60,000 on November 1 to $40,000 on November 10. The failure of FTX also forced a number of other exchanges, notably BlockFi and Celsius Network, to cease withdrawals. 

The fall of FTX has sparked questions about the cryptocurrency market’s stability. The market has grown significantly in recent years, but the collapse of FTX demonstrated that it remained sensitive to shocks. The crash has sparked worries about the perils of investing in cryptocurrency.

What does FTX’s destiny reveal about cryptocurrencies?

Some have suggested that the collapse represents a victory for “decentralised finance,” or DeFi, which employs computer code to create versions of financial services that do not rely on trust or a central party. The head of a DeFi exchange cannot purchase a $40 million penthouse with client monies since there is no head.

Outside the industry, the conclusion is clear. Cryptocurrencies are a wager on the premise that a society free of government control over money and finance would be a better one. In fact, the collapse of FTX demonstrates government rules over finance are rather beneficial.

Conclusion

In summary, the collapse of FTX is a stark reminder of the inherent risks associated with investing in cryptocurrency and decentralized finance (DeFi) platforms. While FTX initially gained popularity and credibility as a leading cryptocurrency exchange, its sudden collapse due to regulatory issues, mismanagement. 

In other words, underscore the importance of conducting thorough due diligence before investing in any financial platform. Modern financial crime and corporate compliance investigations have made the cryptocurrency industry a focal point. Likely, with the dramatic downfall and repercussions of FTX’s collapse serving as a prime example.

Above all, the FTX collapse serves as a cautionary tale, highlighting the need for transparency, accountability, and risk management in the cryptocurrency industry. Meanwhile, by learning from past failures and taking proactive measures to mitigate risks, investors and stakeholders can help build a more resilient and sustainable financial ecosystem for the future.

Frequently asked questions

1. What exactly constitutes the FTX lawsuit?

US crypto investors sued FTX’s developer and other celebrities who promoted his exchange, saying they engaged in deceptive practices in offering FTX yield-bearing digital currency accounts.

2. Is utilizing FTX illegal?

According to US securities legislation, it is prohibited to combine client money with a counterparty and trade it without a specific agreement.

3. What is the future of FTX?

The current price of FTX is $1.50195447. With a possible spike, the FTX price might reach $3.98 by the end of 2024. The FTT price might reach a peak of $30.16 by the end of 2030.

4. What was the value of the FTX collapse?

Consider that in the September report, Ray evaluated the estate’s assets at $US6.7 billion and its liabilities at $US10.6 billion, implying that FTX was insolvent. This reflects the bankruptcy team’s determination to include only the most liquid assets owned by FTX, such as cash and well-known cryptocurrencies like bitcoin.

5. How much did investors lose during the FTX collapse?

FTX, previously one of the world’s top cryptocurrency exchanges, went bankrupt following its rapid fall last year. Shortly after, FTX investigators revealed that $8.9 billion in client assets had gone missing from the exchange.

6. What is the current value of FTX?

The current FTX price is USD 1.88, with a 24-hour trading volume of $1.02 million.