Crypto Exchange FTX Files for Bankruptcy

Amid a rush of customer withdrawals that left the firm teetering on the edge of collapse, cryptocurrency exchange FTX announced Friday that it's filing for bankruptcy, with founder Sam Bankman-Fried stepping down as CEO.

Crypto Exchange FTX Files for Bankruptcy
Image credit: Reuters [via The Guardian]

Facts

  • Amid a rush of customer withdrawals that left the firm teetering on the edge of collapse, cryptocurrency exchange FTX announced Friday that it's filing for bankruptcy, with founder Sam Bankman-Fried stepping down as CEO.
  • Users began withdrawing their funds from FTX last week after an article appeared on the crypto news site CoinDesk suggesting that Alameda — a hedge fund owned by Bankman-Fried — held billions of dollars worth of FTX's own currency, FTT, from clients' accounts to use as collateral in further loans.
  • The crisis escalated last Sunday when Binance chief executive Changpeng Zhao said his company was selling its FTT holdings, worth an estimated $500M, because of "recent revelations that have come to light."
  • Earlier this week, Zhao and Binance — the world's biggest crypto exchange — offered to buy FTX and rescue its depositors. However, the deal fell through once they looked at the company's books, and FTX was back to square one.
  • As Binance exited the deal, Bankman-Fried reportedly asked FTX's investors to put up $8B to cover the shortfall in withdrawals on Wednesday, as one of the firm's investors, Sequoia Capital, on Thursday said its investment of $215M was now valued at zero.
  • FTX's bankruptcy — a company valued between $10B-$50B with over 100k creditors — is the largest in a series of crypto bankruptcies this year. It was already under investigation by the US Securities and Exchange Commission and the Dept. of Justice, with Bankman-Fried now potentially also facing a federal probe into whether FTX misused customer funds to prop up the trading firm.

Sources: CNN, Guardian, Associated Press, and New York Times.

Narratives

  • Narrative A, as provided by Yahoo. FTX was seen as one of the more reputable firms in the crypto world, and its founder was considered a Capitol Hill darling, having donated millions to political campaigns and helped write legislation around cryptocurrencies. This shocking twist — which will have ripple effects across the crypto world — brings all of that into question and renews calls for more regulation.
  • Narrative B, as provided by Business Insider. All of these problems stem from the lack of clarity provided by US legislators, which has driven 95% of the crypto market offshore. They are now largely powerless to retrieve the funds, and it makes no sense to further punish US crypto companies for these mistakes with a regulatory crackdown.

Predictions