There have been a number of articles published asking the same question: “Is FTX Crash The End Of Crypto?”. Well, the short answer is – No. Why? Did Lehman Brothers’ bankruptcy and subprime mortgage crisis in 2007–08 spell an end for the stock market? No, it didn’t. Was it bad? Of course. Was it a setback for the stock market? Definitely yes!
Is FTX crash a major setback for crypto market? Unfortunately, yes.
The FTX-Alameda crisis has significantly impacted the crypto market, and it will take time to recover from this setback.
You might want to know how this saga played out—from a buzzing company (FTX) and a towering personality (SBF) to a bankrupt entity and a disgraced figure with so many legal troubles. This debacle has undoubtedly scarred a lot of investors and crypto enthusiasts.
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Chain Of Events to FTX bankruptcy
Alameda Balance Sheet Leaks
On November 2, Coindesk published an exclusive report based on a leaked balance sheet of Alameda Research, FTX CEO Sam Bankman-Fried’s trading firm. The report revealed that Alameda’s balance sheet is full of FTT tokens, which are issued by the FTX exchange.
It meant that SBF’s trading firm, Alameda, rested on a foundation largely made up of a token created by his sister company rather than an independent asset like a fiat currency or another cryptocurrency.
FTX uses FTT as a reward currency for trading discounts, and Alameda held considerably more tokens than were traded on the market, implying that its holding would be difficult to liquidate at current prices.
Binance Decides To Sell FTT Token Holdings
On November 6, Binance CEO Changpeng “CZ” Zhao announced on Twitter that he was selling his remaining FTT token holdings. Binance was an early investor in FTX and received roughly $2.1 billion’s worth in the form of BUSD and FTT tokens after its exit from the firm. CZ compared FTT to the Luna token, which Binance once supported.
FYI, FTX and Binance have been tussling for supremacy in the crypto exchange market for quite some time.
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 🔶 Binance (@cz_binance) November 6, 2022
The Domino Effect: FTT Token Price Dumps
CZ’s announcement spooked the investors. By November 8, the panicked investors had withdrawn $6 Billion in just 72 hours. The FTT token price plummeted below $22. And FTX was faced with an impending liquidity crisis.
CZ Offers Help But Later Backs Out
On November 8, Binace CEO CZ stepped in to save the FTX. He announced that his company has agreed to buy competitor Sam Bankman-Fried’s FTX for an undisclosed amount. CZ tweeted that they have signed a non-binding Letter of Intent (LOI) to fully acquire the FTX cryptocurrency exchange.
According to CZ, FTX executives contacted Binance due to a serious liquidity crisis. And he has agreed to “help them out.”
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
1) Hey all: I have a few announcements to make.
Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).
— SBF (@SBF_FTX) November 8, 2022
But things didn’t go well. On November 9, they backed out of the deal, citing news regarding the mishandling of customer funds and alleged U.S. agency investigations as the reasons behind this decision. By this point, the FTT token had lost over 90% of its value since the start of the crisis.
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
FTX Exchange Files for Bankruptcy; SBF Steps Down as the CEO
On November 11, FTX announced in a formal press release that it is finally filing for Chapter 11 of the United States Bankruptcy Code in order to begin an orderly process of reviewing and monetizing the firm’s remaining assets for the benefit of all global stakeholders in the company.
Press Release pic.twitter.com/rgxq3QSBqm
— FTX (@FTX_Official) November 11, 2022
1) Hi all:
Today, I filed FTX, FTX US, and Alameda for voluntary Chapter 11 proceedings in the US.
— SBF (@SBF_FTX) November 11, 2022
Sam Bankman-Fried, the company’s founder, also resigned as CEO, stating that he will “assist in the orderly transition.” John J. Ray III was appointed the new CEO.
Reports of FTX hack Emerge
On November 12, reports suggested that FTX wallets have been hacked and exploiters have taken insider help to gain root access. Over $600 million in abnormal transfers were reported in just a few hours, with the exploiter swapping all crypto assets to DAI and ETH, which can’t be frozen.
Reuters reports that at least $1 billion in client deposits have gone missing from the bankrupt cryptocurrency exchange, according to sources. Allegations of mismanagement of customers’ funds pile up. Prosecutors say FTX and its founder, SBF, could face criminal charges for using customer funds for his other company, Alameda Research.
Bahamas and SBF
While investigating the hack, FTX discovered that Bankman-Fried and FTX co-founder Gary Wang made “unauthorised” transfers at the instruction of the Bahamian government while “essentially in the custody of Bahamas authorities.”
This debacle is far from over. Stay Tuned.
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