Crypto exchange FTX filed for voluntary bankruptcy under Chapter 11 last week. Before filing, Binance liquidated its FTT investment, users withdrew billions of dollars from FTX. So what happened to FTX and how does it affect crypto investors and traders?
What’s going on in FTX?
FTX was an international cryptocurrency exchange. But it also served US customers through FTX US. Alameda Research, a quantitative crypto trading firm, is also part of the FTX Group. FTX’s own token is the FTX Token (FTT).
The crypto exchange was the fourth largest crypto platform in the world. However, he essentially hid the amount of leverage on his balance sheet. Reports on its financial situation led Binance CEO Changpeng Zhao to tweet that he will liquidate FTT shares due to “recent revelations coming to light.” Brock Pierce, head of the Bitcoin Foundation and venture capitalist, comments:
People began to withdraw after news broke that this liquidity was in crisis. Additionally, FTX used its native token FTT to gain an edge over its other investments. They used this token as collateral to invest in different projects such as BlockFi and mutual funds. So, they were investing. What happened is that when people started withdrawing their deposits and the token started to drop, the collateral basically collapsed.
Brock Pierce says it creates a domino effect. He also notes that it has impacted all FTX-related companies and nearly every exchange. Although traders pulled billions from FTX, Binance later made a deal to buy the exchange. However, as you follow on Kriptokoin.com, Binance announced on November 9 that it was withdrawing from the deal due to corporate due diligence and ‘recent news about mismanaged client funds and alleged US agency investigations’.
Following the withdrawal of users and failure to purchase, the company filed for Chapter 11 bankruptcy. He then appointed a new general manager, John Jay. Former CEO Sam Bankman-Fried has transferred billions of user funds to his sister company Alameda Research, Reuters reports. But $1 to $2 billion of those funds were lost. FTX administrators attributed the loss to ‘unauthorized access’ and are currently working to resolve the issue.
Who was affected by the FTX collapse and how?
According to a press release posted on the official FTX Twitter account, FTX is owned by West Realm Shires Services Inc., Alameda Research Ltd. and about 130 other subsidiaries filed for Chapter 11 bankruptcy. All of their companies make up what is known as the FTX Group. He also said that these subsidiaries were not included in the bankruptcy proceedings: LedgerX LLC, FTX Digital Markets Ltd., FTX Australia Pty Ltd. and FTX Express Pay Ltd.
However, Sequoia Capital, a venture capital firm, has invested approximately $213.5 million in FTX.com and FTX US. The firm has since announced that it has reduced its investment to $0 in a note to its limited partners. Sequoia said the impact of the FTX crash is limited.
But the FTX crash also affected BlockFi. On November 10, the crypto exchange made a post saying that it was ‘not able to run business as usual’ due to the lack of clarity regarding the FTX/Alameda crisis. BlockFi added that it will limit platform activity and stop withdrawals. It released an update on November 14, saying it will continue to pause withdrawals while we explore next steps.
Crypto.com was also among those affected. Its CEO, Kris Marzalek, said in an interview that the exchange got $990 million back from FTX. Given that the exchange has roughly $1 billion in FTX, this means the exchange has a $10 million loss. He added that Crypto.com is running their business as usual.
Crypto exchange Gemini was also affected by the FTX crash. Gemini Earn, a feature that offers interest rewards in different cryptocurrencies, is based on Genesis Global Trading. However, Genesis recently announced that it is suspending redemptions and new loan originations. Subsequently, Gemini stopped withdrawals from the Gemini Earnings account.
Other companies, including BlackRock, Insight Partners, Tiger Global, and Paradigm, were also affected by the FTX collapse through investments.
What will happen to investors’ cryptocurrency?
If you’ve stored some or all of your crypto assets via FTX, you’ll usually only get paid after the crypto exchange covers legal fees and any debts to creditors. However, users are not guaranteed to receive payment. That is, you only get a share when the company has something left to give. And this can vary based on a platform’s particular financial situation.
Insurance acts as a lifeline for those with an escrow account. However, FTX does not offer these protections for deposited funds. The company currently pauses cryptocurrency withdrawals and limited user activity while it works to secure its platform.
Is FTX under investigation?
The recent string of events surrounding the Bahamas-based crypto exchange has prompted Bahamas authorities to launch an additional investigation. The Royal Bahamas Police Force announced that the Financial Crimes Investigation Branch and the Bahamas Security Commission are working together to investigate whether any misconduct has occurred. Meanwhile, according to sources, the US Department of Justice and the Securities and Exchange Commission were also investigating FTX before the crash occurred.
How did the crash affect the crypto market?
Bitcoin’s price fell 15% on Wednesday, November 9 after Binance withdrew from the purchase. In this move, BTC fell from $ 18,500 to $ 15,625. BTC price climbed back above $17,500 the next day. However, the stock market fell back to the $16,000 range on November 11 after the bankruptcy announcement.
Ethereum also saw losses on the day of the Binance split. ETH is down 15% and slumped to around $1,090. Meanwhile, Solana’s price has also lost 42.5% in the past seven days. FTX Token (FTT), on the other hand, has lost almost all of its value. Brock Pierce comments:
Ultimately, the FTX crash will not have a negative impact on the blockchain industry in the long run, despite the short-term disruptions it is currently causing in the industry. This crisis is an example of the market self-correcting. The industry effectively protects itself against high-risk, unstable practices and companies that engage in this behavior.
How can investors store their crypto securely?
The FTX debacle has many investors wondering how they can both securely store their crypto assets and whether personal surveillance is better than using an exchange’s wallet. Mt. Multiple crypto exchanges have filed for bankruptcy, including Gox, Voyager, and Celsius. These, in turn, have left many investors in unsettling positions.
Especially users who have funds held through the exchange are most affected as the exchange mainly controls the keys of their wallets. But there are storage alternatives for those who want more control over their investments. DeFi wallets are similar to custody services. However, companies do not have access to your keys. In other words, you still have control over your crypto. Finally, you can open non-custodial wallets in addition to a crypto wallet that your exchange offers. However, this is not a good idea if you want sole control over the private keys of your assets.
The FTX collapse not only led to a bankruptcy filing, but also caused the disappearance of billions of funds and ongoing investigations. Users with assets held in FTX will likely be the last to receive payments, as the company ranks bankruptcy proceedings and what is considered unauthorized access.
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