Crypto exchange FTX filed for bankruptcy on Friday after losing billions. (archive image)
The rise of the FTX crypto exchange has been phenomenal. In less than three years, the company was valued at $32 billion and managed billions of dollars on behalf of its clients. A week ago, the FTX group collapsed like a house of cards and declared bankruptcy.
What is FTX?
FTX is a trading platform that allows users to trade cryptocurrencies such as Bitcoin and Ether, but also far more complex financial products. The company was founded in May 2019 by two MIT graduates: Sam Bankman-Fried and Gary Wang. In February 2022, the crypto exchange already had a million customers.
In particular, Bankman-Fried, who goes by the initials SBF online, has quickly achieved crypto guru status. FTX is used not only by private investors, but also by hedge funds and other professional players.
What is the Alameda research about?
Prior to FTX, Bankman-Fried founded Alameda Research in October 2017 to take advantage of the price differentials in cryptocurrency trading between Asia and the US. The size of these arbitrage deals grew. Bankman-Fried therefore decided to create its own FTX trading platform. The connection between FTX and Alameda is opaque in detail and is said to have contributed significantly to the FTX crash.
Why is FTX broken?
On the one hand, there is a suspicion that FTX has embezzled ten billion US dollars in customer funds. A large part is said to have flowed into Alameda. The company is said to have taken risky financial bets. FTX Group’s liquidity crisis was exacerbated by the loss of value of its own cryptocurrency, FTT, which made up a significant portion of deposits.
What role did Binance and Changpeng “CZ” Zhao play in this?
Binance is the world’s largest crypto exchange and a competitor to FTX. However, at the founding stage of FTX 2019, Binance boss Changpeng Zhao was still acting as a promoter and investor of FTX. But with the rise of FTX, the relationship between the two crypto stars SBF and CZ also cooled. Binance returned its FTX holdings in the summer of 2021 for the equivalent of approximately $2 billion, and also received more than $500 million worth of FTT coins in the transaction. When Binance announced over a week ago that it was divesting its FTT holdings, the local currency FTX came under heavy pressure. A little later, FTX filed for bankruptcy and Sam Bankman-Fried resigned as CEO of FTX.
Didn’t Zhao want to save FTX from bankruptcy?
On Twitter, Binance at least promised to save FTX. But the takeover was called off after just one day. “Problems beyond our ability to help,” the tweet read with a sarcastic undertone. Many observers believe that Zhao had a master plan in place to hasten the demise. Binance CEO Changpeng Zhao flatly denied this.
Should FTX customers be worried about their money?
Yes, it is possible to lose all deposits. The extent of the damage will depend on what property remains. Investors are also concerned by reports that not all remaining deposits have been secured after the bankruptcy filing. The company’s head of legal, Ryne Miller, said FTX is “investigating anomalies in wallet movements related to the consolidation of FTX balances across exchanges.”
What are the authorities doing?
FTX and Bankman-Fried are under the scrutiny of financial regulators and law enforcement agencies in several countries. The case is complicated because FTX Group operates a subsidiary in the US. However, the group is incorporated in the Caribbean in Antigua and Barbuda and is headquartered in the Bahamas. The Royal Bahamas Police Force said financial investigators are working with the Bahamas Securities Commission to investigate possible criminal conduct. Bankman-Fried is reportedly still in the Bahamas.
What are the implications for cryptocurrencies like Bitcoin?
For the crypto market, the events surrounding FTX are a shock. Although investors are used to all kinds of scandals, the FTX crash hit the market at a delicate stage: Interest rates have been rising globally for some time as central banks take steps to combat high inflation. Some central banks are also starting to pull money created during the crisis from the markets. The increase in interest rates and the decrease in liquidity are particularly harmful to risky financial assets, which include digital currencies. Accordingly, Bitcoin, Ether and other cryptoassets have come under further pressure due to the FTX crisis. Bitcoin alone recently lost nearly a quarter of its value to around $16,000. At the beginning of the week, he was able to recover a little.
What implications could the FTX bankruptcy have for cryptocurrency regulation?
Virtually every financial scandal prompts calls for more regulation. Authorities such as Germany’s Bafin and large central banks have been promoting this for a long time. For example, the head of the Bank of Japan, Haruhiko Kuroda, spoke out for stricter regulation on Monday. However, the road there is rocky, as a study by the International Monetary Fund (IMF) shows: According to it, the crypto industry is not just a particularly fast-growing area. The data for tight regulation is also patchy, and the relevant market participants are extremely numerous, write the IMF’s Aditya Narain and Marina Moretti. National efforts are also very different, and global regulation of cryptocurrencies is correspondingly fragmented. (SDA/kae)