The Financial Meltdown Of World’s Biggest Cryptocurrency!

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FTX was supposed to be the future – a safe, reliable and innovative way to trade digital currency. Instead it has unleashed a financial meltdown, reports The Guardian.

Crash of the future safe FTX

FTX seemed to be a shining example of a cryptocurrency exchange that was doing everything right. Run by Sam Bankman-Fried – a multibillionaire, believed by many to be a once-in-a-generation genius, who rubbed shoulders with congresspeople and called for “thoughtful regulatory leadership” – FTX and its sister companies were bringing crypto to the mainstream. 

They spent millions on a Super Bowl ad comparing crypto to the invention of the wheel and the lightbulb, urging customers not to “miss out” on “the next big thing” and touting FTX as “a safe and easy way to get into crypto.” During the crypto downturn this past year, Bankman-Fried was compared to JP Morgan for the seemingly endless pile of cash he had to offer floundering crypto firms as he swooped in as a savior.

In the span of one week, his empire came crashing down

A leaked balance sheet from Alameda Research, Bankman-Fried’s quantitative trading firm, allegedly showed that a massive portion of Alameda’s assets were denominated in tokens that FTX themselves created. It was already an open secret that FTX and Alameda were tightly intertwined, but there was little hard evidence as to how tightly they were linked, and regulators had not made any substantial moves to investigate the ties.

Binance

Then, FTX’s largest competitor, Binance, announced it would be selling off a substantial amount of FTX tokens left over from 2021, when Bankman-Fried bought back Binance’s stake in FTX. Binance’s sell-off intensified public concern over FTX’s stability, causing a sudden drop in the price of the FTX token and a run on the bank by customers who kept funds in the exchange.

Within days, Bankman-Fried had called Binance to ask for a bailout, which Binance dangled before backing out a day later, citing evidence of “mishandled corporate funds” and other improprieties that had emerged in their due diligence process. On Friday, FTX filed for bankruptcy and Bankman-Fried resigned.

The extent of Bankman-Fried’s self-described fuck-up is still becoming clear. He has said that he mistakenly estimated that his clients had zero leverage. The Financial Times’ Alexandra Scaggs was generous when she wrote on Thursday that this “stretches the limits of credible belief” coming from someone who ran a platform popular for leveraged trading.

The Wall Street Journal has reported that Bankman-Fried may have loaned substantial portions of FTX customer assets to Alameda, funding their risky trading strategies and bailing them out when those same strategies nearly sunk the trading firm in the spring.

Bankman-Fried had been so successful in allegedly playing fast and loose with customer funds, and printing “money” out of thin air with his exchange’s own tokens, that he seems to have believed he could do it forever.

As with so many crypto firms, however, FTX’s house of cards was built atop a foundation of public belief. When that belief began to crumble following the balance sheet leak and the Binance sell-off, nothing could stop the sudden and catastrophic spiral.

The aftershocks of FTX’s collapse will be protracted and devastating. Like a tsunami after an earthquake, the failure of a major player in the cryptocurrency industry reverberates outwards, battering other investors with exposure to FTX and Alameda. Any subsequent failures cause their own tsunamis, and so on.

We got a small-scale preview of this in the spring and summer with the failure of projects including Terra/Luna, Three Arrows Capital, Celsius, and Voyager. The cryptocurrency industry is still reeling from those failures, and a lot of people lost money or saw the money they entrusted to those companies locked up while bankruptcy proceedings are underway.

FTX dwarfs any of those projects, and the contagion will spread much further. The cryptocurrency industry is in for a rough ride, and the lessons they learn will be painful ones.

In the meantime, regulators and legislators have just watched what they believed to be a stable, well-run cryptocurrency exchange – one whose leader was advising them on policy only weeks prior – collapse amid alleged fraud and malpractice. It’s an example that is guaranteed to stick in their minds as they grapple with questions of consumer protection and contagion to the traditional financial system in the coming months and years.

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Source: The Guardian

2 COMMENTS

  1. That’s right, thank you for such useful information, even I could not have predicted this, but for all those who have suffered from this, I want to say that life does not end, because after all, nowadays there are many more ways to make money than you think, one of I recently found them, and this is a sport. I want to recommend you a great list of sites where you can earn money: https://www.mensjournal.com/entertainment/6-best-crypto-betting-sites-for-bigger-wins-in-2023/

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