Young crypto billionaire Sam Bankman-Fried and his exchange FTX crashed this week. Huge financial losses follow bankruptcy filings and potential federal investigations. Now one of the questions on the community’s minds is which projects will follow the FTX collapse…
Who is Sam Bankman-Fried and what is FTX?
Silicon Valley-born, MIT-educated Bankman-Fried, also known as SBF, founded crypto trading company Alameda Research in 2017, after stints in the philanthropic world and trading firm Jane Street. Two years later, Bankman-Fried and his team launched the cryptocurrency exchange FTX, which has advantages such as low transaction fees and advanced options for traders. According to Bloomberg, Bankman-Fried got richer by making $350 million and $1 billion in profits, respectively, from FTX and Alameda in 2020 alone.
Bankman-Fried was worth $26 billion at her peak, but her net worth dropped to $16 billion when she went bankrupt. At age 30, he was one of the largest political donors in the United States. He convinced celebrities like Tom Brady and Gisele Bündchen to take over FTX. Bought the naming rights of the arena where the NBA’s Miami Heat plays.
So what happened to the stock market and its founder?
Earlier in November, crypto news site CoinDesk published a disclosure report on Bankman-Fried and his companies. The report revealed that although Alameda Research and FTX are two separate companies, Alameda’s funds are mostly tied to FTT, FTX’s cryptocurrency.
A few days after the disclosure, Binance CEO CZ announced that they have decided to sell their $530 million in FTT. After that, FTX users also competed to save their funds. The exchange saw an estimated $6 billion in withdrawals within 72 hours.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 BNB (@cz_binance) November 6, 2022
After the event, the price of the FTT token plummeted 32% within hours. It rallied once again after Bankman-Fried announced on Tuesday, November 8, that Binance will acquire FTX.
Hopes were short lived
On Wednesday, Binance announced it was withdrawing from the deal, citing findings from due diligence, reports of misused client funds, and the possibility of a federal investigation. The news caused FTT to drop even more. Bankman-Fried saw 94% of her net worth wiped out in a single day.
Cash-strapped Bankman-Fried began calling other industry rivals for bailouts, including Coinbase CEO Brian Armstrong. On Friday, FTX filed for Chapter 11 bankruptcy and Bankman-Fried stepped down as CEO.
Bankruptcy and resignation day
Bankman-Fried said on Twitter that he “sinked twice”. He attributed FTX’s crash to a combination of withdrawal requests and his own speculation about FTX’s debts. But a Reuters report suggested that there may be other factors at play. Citing anonymous sources, the news service said earlier this year that Bankman-Fried transferred client funds from FTX to Alameda without telling anyone after Alameda was hit with a string of losses.
Who else has the FTX crash affected?
FTX is backed by a number of investors including SoftBank Vision Fund, Tiger, Sequoia Capital and BlackRock. Sequoia said this week that it has cut its investment in FTX to $0. The VC firm has invested a total of $213.5 million in FTX.
Here is the note we sent to our LPs in GGFIII regarding FTX. pic.twitter.com/Cgp1Yxk1pz
— Sequoia Capital (@sequoia) November 10, 2022
There’s also Bankman-Fried’s inner circle, a group of 10 people who live with him, and who drove FTX and Alameda out of the Bahamas. Sources indicate that the group was a mix of college friends and former colleagues. Additionally, he reports that Bankman-Fried is firmly attached to his empire. That’s why they’re probably suffering heavy losses right now, too.
What does all this mean?
2022 was a tough year for the crypto market, which experienced a $2 trillion collapse in May. Now, the FTX drama is creating a huge ripple effect in the crypto market. According to CoinMarketCap, its bankruptcy dropped its total market capitalization (TOTAL) by 12% in one day.
Industry experts suggest that the bankruptcy could encourage regulators to crash the crypto market. Moreover, it could further undermine confidence in the market and lead people to withdraw their crypto holdings out of fear. JPMorgan analysts wrote on Wednesday that a crypto showdown is imminent. Experts warned that investors should be prepared. Bankrate.com analyst James Royal said on Friday:
As an investor, you should seriously question what you’re investing in if it can evaporate over a weekend. Prices are entirely based on feeling and belief about the future of crypto… If that belief disappears, you’re left with nothing.
Which projects are following the FTX collapse?
After the crisis, the biggest drop in the market was Solana, once one of the top ten altcoins. The price of SOL dropped to a record low of around $12 earlier last week. SOL price has lost more than 50% in just seven days. Similarly, Solana-based launchpads and NFTs followed momentum. The volatility has sparked debate among crypto analysts and Blockchain developers about the long-term future of Solana.
According to Alex Tapscott of Ninepoint Partners, the rapid drop in SOL is not a “death knell” for Solana. As you follow on Kriptokoin.com, Solana-based wrapped tokens are in great danger. Also, USDD, the stablecoin of Tron, started to lose its stability in the dollar.
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