A 30-year-old businessman who was once lauded as a modern-day J.P. Morgan watched his digital empire, including billions of his own riches, evaporate in a death spiral that has rocked the foundations of the trillion-dollar cryptocurrency sector in the span of a single week. Sam Bankman-Fried apologized to FTX’s investors and clients on Thursday, writing, “I f**ked up,” in a lengthy Twitter thread. Bankman-Fried started FTX in 2019. By Friday morning, FTX had announced Bankman-Fried’s resignation as CEO and the company’s bankruptcy filing.
In the shadowy, largely unregulated world of cryptocurrencies, failures are not unheard of, but FTX is not your typical crypto business. This business, according to many detractors, has been given a pass for far too long, and this week’s close call with collapse signals a potential turning point.
What transpired to FTX, and why is the entire cryptocurrency community in a frenzy around it? Even though there are still many unknowns, here is what is currently known.
On the basis of a financial document from Bankman-Fried’s hedge fund, Alameda Research, that was leaked last week, the cryptocurrency news website CoinDesk published a story.
According to the assessment, Alameda’s operation was supported by weak finances. Its assets are mostly held in FTX, a digital token created by Alameda’s sibling company, FTX. Investors raised a red flag since the companies were, at least on paper, distinct. However, the disproportionate token holdings of Alameda revealed a far closer connection between the two.
The CEO of Binance, a far bigger rival of FTX, announced on Sunday that his company was selling off FTX holdings worth $580 million. That sparked a wave of drawdowns that FTX was unable to handle with its available funds.
By Monday, worries about FTX and Alameda had spread to the larger cryptocurrency market. Bankman-Fried, however, remained stubborn and tweeted that FTX and its assets were “fine.” He also got into a fight with Changpeng Zhao, CEO of Binance, whose tweet had sparked the run on FTX deposits.
The industry was astonished when the two revealed a tentative deal for Binance to save FTX on Tuesday because there was obviously ill will between them.
Zhao tweeted that afternoon, “This afternoon, FTX asked for our help,” stressing that the company was under a “significant liquidity crunch” and that Binance would need to perform corporate due diligence before to moving through with any deals.
But as soon as Binance had a peek inside, it started to change its position.
Bankman-Fried’s own financial situation also declined at the same time. The largest one-day loss ever recorded by the Bloomberg Billionaire Index was experienced by Bankman-Fried, whose net worth fell 94% in a single day from more than $15 billion to just under $1 billion. (The estimation of his fortune was predicated on the presumption that Binance will ultimately save FTX, which houses the majority of Bankman-Fried’s personal holdings. which suggests that his net worth could decline much further.)
FTX declared bankruptcy after a crazy week. In a statement, FTX said that John Ray III had been chosen as the new CEO and that many exchange staff would likely continue working there as the company underwent Chapter 11 restructuring.
According to Ray, filing for bankruptcy will allow FTX to “assess its situation and develop a process to maximise recoveries for stakeholders.”
Legislators are calling for a crackdown as regulators scramble to find out what went wrong at FTX.
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