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The Start & Glory Days of FTX
In July 2021, the cryptocurrency exchange had over one million customers and was the third-largest by volume. The Bahamas-based foreign exchange company FTX was founded in Antigua and Barbuda by Bankman-Fried and Wang in May 2019. The "FTX" abbreviates as "Futures Exchange”. Just six months after Bankman-Fried and Wang created FTX, Binance's Changpeng Zhao bought a 20% interest for $100 million.
FTX bought cryptocurrency portfolio tracking software Blockfolio for $150 million in August 2020. With approximately 60 investors, including Softbank and Sequoia Capital, FTX evaluation reached $32 Billion .
On January 14, 2022, FTX Ventures, a $2 billion venture fund, raised $400 million in Series C fundraising. Following the inflow of capital, FTX acquired BlockFi for $240 million in July 2022. FTX also sponsored the Mercedes-AMG Petronas F1 Team the same year. In February 2022, FTX announced a gaming branch to help game developers integrate cryptocurrencies, NFTs, and other blockchain assets. In September of 2022, FTX.US won $1.31 billion in Voyager-held cryptocurrencies and $111 million in extra consideration valuing the purchase at $1.42 billion.
The Anticlimactic downfall
On November 6, Binance CEO Changpeng Zhao tweeted that his company would sell all FTT holdings. After Zhao announced the sale and clashed with Bankman-Fried on Twitter, FTT and other cryptocurrencies fell in price, prompting depositors to sell $6 billion over three days, emulating a bank run. Following this, Zhao announced Binance's non-binding acquisition of FTX due to its "liquidity problem." As the deal excluded FTX, FTT lost $2 billion in value after this disclosure. Bloomberg and the Wall Street Journal called Binance's acquisition of FTX "unlikely" due to its financial situation.
The SEC and CFTC launched a probe into FTX's handling of customer funds and ties to Bankman-other Fried's interests from the press. On November 9, the FTX website reported withdrawal delays. Bankman-Fried stated that the firm's assets were worth more than its clients' deposits and FTX.US was "not currently affected", but liquidity issues required external capital to meet withdrawal demand.
The FTX's founding members needed $8 billion to bail out the exchange, the Bahamas securities authority froze FTX Digital Markets' assets on November 10. FTX was also investigated by the California Department of Financial Protection and Innovation the same day.
Bankman-Fried apologised for the liquidity crisis on Twitter and said FTX's non-U.S. exchange lacked the money to meet consumer demand. Bankman-Fried blamed "bad internal labelling" for FTX's leverage and liquidity miscalculation. The CEO shortly resigned as FTX filed for Chapter 11 bankruptcy protection.
John J. Ray III, who led Enron through bankruptcy, replaced Bankman-Fried as FTX CEO on November 11. At the time of bankruptcy declaration, FTX had assets and liabilities between $10 billion and $50 billion respectively.
FTX claimed "unauthorised transactions" and moved its digital assets to cold storage, hours after declaring bankruptcy. External analysts estimate the breach cost FTX $477 million. On November 18, the SCB took custody of FTX's bitcoin and Bankman-Fried was asked to transfer crypto assets to the SCB's wallet to protect creditors.
Is it Sunset for FTX?
FTX's cryptocurrency exchange future is precarious. The FTX website warns its users against deposits and has disabled withdrawals as of mid-November 2022.
It will take time to see how the FTX fiasco affects bitcoin. FTX's biggest drop in cryptocurrency history has deterred investors already and raised their concerns about stability and security. FTX may face legal action if its customers cannot retrieve their assets. The SEC and other regulators have increased cryptocurrency monitoring after FTX's demise, and Congress may be ready to pass additional digital token and exchange laws.
The crypto world is shaken by the collapse of the third-largest bitcoin exchange by volume. FTX's downfall has caused tremors among its competitors. On November 11, 2022, BlockFi ceased client withdrawals, raising questions about its viability, Crypto.com's departures rose on November 12–13, 2022 and Genesis Global Capital halted crypto lending withdrawals.
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