With this article, you can learn how did FTX collapse and find out what happened to FTX crypto. Major cryptocurrency exchange FTX and its U.S. subsidiary, FTX.US, have filed for Chapter 11 bankruptcy, according to FTX’s Friday announcement. According to the company’s press statement, founder and CEO Sam Bankman-Fried has left; the new CEO is John J. Ray III, who managed the infamous energy firm Enron through its bankruptcy and liquidation process roughly 20 years ago.
The exchanges collapsed amid worries about liquidity and claims of money being misappropriated, which was followed by a significant amount of withdrawals from alarmed investors. When the value of FTX’s native token, FTT, fell, other coins, like Ethereum and Bitcoin, which had hit a two-year low as of Wednesday afternoon, also fell along with it.
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How did FTX collapse: Summary
- Sam Bankman-Fried launched the cryptocurrency exchange FTX in 2019 and led it through Friday. The exchange, which as of Tuesday was the fourth-largest cryptocurrency exchange by volume, issues its own coin, FTT.
- Alameda Research, a cryptocurrency trading company that Bankman-Fried also started has a problematic balance sheet as of November 2, according to CoinDesk. According to the research, it has FTT worth billions of dollars as its biggest assets.
- The CEO of competitor exchange Binance, Changpeng Zhao, tweeted on Sunday that he intended to sell off Binance’s holdings of FTT because of “new disclosures that have come to light,” alluding to the CoinDesk article from November 2 about FTX and Alameda’s obscured funds. He likened the predicament of FTX to the crashes of TerraUSD and LUNA earlier this year, which destroyed the cryptocurrency industry and lost investors billions of dollars. However, such actions usually aren’t made public.
- Zhao’s revelation caused a sharp drop in the value of FTT during the following day as concerns developed that FTX lacked the liquidity required to support transactions and remain afloat. Other coins, like BTC and ETH, also saw a dip in value as Bitcoin hit a two-year low. In a tweet sent on Thursday, Bankman-Fried reported that $5 billion had been withdrawn from the site on Sunday.
- Zhao and Bankman-Fried negotiated an agreement for Binance to buy FTX’s international division. The CEOs of the exchanges agreed to a non-binding letter of intent on Tuesday, effectively pledging to save the failing exchange and avert a worsening market catastrophe.
- Binance pulled out of the deal. Zhao tweeted the next day that Binance had finished its “corporate due diligence” and would not be purchasing FTX. Zhao said in a tweet that his choice was influenced by news stories about “mishandled customer monies” and “possible U.S. government probes.” In a mysterious tweet that ended with the words, “Well played; you won,” Bankman-Fried seemed to be alluding to Zhao’s impact on FTX’s decline.
- All withdrawals from non-fiat customers were stopped by FTX on Tuesday. FTX’s liquidity problems were explained in a series of tweets by Bankman-Fried, who also promised greater transparency.
- According to a recent article by The Wall Street Journal, Bankman-Fried informed investors that Alameda owed FTX roughly $10 billion for a loan that FTX provided to Alameda using customer deposits. However, the report states that FTX only had $16 billion in assets prior to the loan, which means that it lent out more than half of its assets.
- Trading “may be paused on FTX US in the next several days,” according to a Thursday notice issued on FTX.US’s website for users on the log-in screen. Users were instructed to close any positions they wished to, although withdrawals will remain open, according to the statement.
- The filing for Chapter 11 bankruptcy for FTX, FTX.US, and Alameda was made public by FTX on Friday. In contrast to Chapter 7 bankruptcy, which involves the liquidation of assets, Chapter 11 bankruptcy enables businesses to restructure their debt and carry on with operations.
- Despite earlier promises that FTX.US was unaffected by FTX’s liquidity issues, FTX.US likewise suspended withdrawals on Friday after the bankruptcy declaration.
- In an alleged hack, FTX wallets were empty on Friday night. According to CoinDesk, more than $600 million was stolen from the wallets. On its help page on the messaging app Telegram, FTX announced the hack, writing, “A hack was made on FTX. FTX apps include viruses. Take them out. The chat window is open. Avoid visiting the FTX website as it could download Trojans.” Trojan horses are malware that poses as trustworthy programs.
- The same evening, FTX general counsel Ryne Miller announced on Twitter that due to the “unauthorized transactions” or the apparent breach, the business would swiftly move any remaining assets to cold storage, which is inactive.
Due to the possibility of falling prices and financial difficulties for cryptocurrencies and exchanges with exposure to FTT or FTX, the impact of FTX’s crash may be felt widely across the whole cryptocurrency market.