The cryptocurrency world seems stunned. After the failed rescue of Binance, the giant FTX went bankrupt. A look back at the fall of a giant, the world’s second largest crypto-asset trading platform until last week.
The fall of FTX
Considered so far as one of the platforms of cryptocurrencies the most secure, the second largest crypto-asset exchange company collapsed in just a few days. Just a week ago, the fortune of Sam Bankman-Fried (SBF), the founder and CEO of FTX, was valued at $16 billion. Today it is zero. It is a scandal whose contours are still unclear. However, the 30-year-old had managed to rally leading investors such as Temasek and SoftBank to his side, but also an American football legend, Tom Brady, who had become his brand ambassador.
Three years of glory crumbled in just a few days. On Friday, November 11, 2022, FTX is officially declared “ bankrupt in a Delaware court. According to observers, it is neither more nor less than the biggest fall in the world of cryptocurrencies “. We are already comparing this bankruptcy with that in 2001 of the electricity broker Enron, or the one in 2008 from Lehman Brothers. This story is indeed surprising.
With its 300 employees, FTX was one of the strongest cryptocurrency platforms on the market. 100,000 customers now find themselves without a way out and one can imagine that in the future, trust in crypto-asset platforms will be widely questioned. The fall of FTX brought down the Nasdaq, the Dow Jones and the S&P 500. Same thing for bitcoin which fell by 16%. It is now down about 75% from November 2021. The fall of FTX is sending shockwaves through the cryptocurrency industry.
FTX boss Sam Bankman-Fried has crossed the red line
According to several sources including the wall street journal, Sam Bankman-Fried allegedly used half of his fortune ($16 billion in capital deposited by his clients) to fund his own crypto-financial company called Alameda and registered in the Bahamas. The platform founder still owes FTX $10 billion. In addition, dozens of senior executives who work at FTX have left the Bahamas over the weekend. They left the Albany Resort, the gated community where they lived, for Hong Kong, where FTX had established its headquarters until 2021.
Prior to their Friday night departure, hundreds of millions of dollars were drained from FTX’s wallets. The cryptocurrency mogul has therefore crossed a red line. A limit normally impassable in the United States since the crisis of 1929 and reinforced after the financial crisis of 2008: “ using his clients’ money to speculate for his own account “.
The Securities and Exchange Commission (SEC) has, unsurprisingly, opened an investigation into this scandal. John Ray, new leader of FTX and specialist in bankruptcy, must manage debts whose amount could be around 50 billion dollars. He stated that “ FTX Group has valuable assets that can only be managed effectively through an organized process “. How did FTX come to this?
Binance: the failed rescue attempt
The fall of this platform was partly caused by a tweet from Changpeng Zhao (CZ), the boss and founder of Binance (the number 1 in the cryptocurrency sector). Indeed, a few months ago, he announced that Binance would “ sell all of its FTT “. A token issued by FTX. He explained that because of ” recent revelations, we have decided to liquidate all remaining FTTs in our accounts. We will try to do this in a way that minimizes the impact on the market. Due to market conditions and limited liquidity, we expect this to take a few months “.
At this moment, a wind of panic blew in the world of crypto-assets. With this statement, CZ implied that FTX was going to face significant liquidity problems. Concretely, the boss of Binance made it clear to users around the world that FTX would not have enough cash in stock to meet its commitments. At the same time, many investors withdrew the money stored on the platform as a precaution. Initially, SBF, founder of FTX, wanted to be reassuring.
He even denied the rumors evoking the beginning of a crisis by explaining that ” FTX is fine. Assets are doing well. FTX can hedge all of its clients’ holdings “. Today we know that was a lie. This situation prompted Binance to formulate a takeover proposal. The cryptocurrency giant said last week that it had “ signed a non-binding letter of intent, with the aim of fully acquiring FTX “.
An operation that could have allowed FTX to get its head out of the water. Some market analysts say that Binance could have orchestrated the fall of the American platform to be able to redeem it. Accusations denied by the boss of Binance who claims not to have ” planned this or anything related to it. I had very little knowledge of the internal state of affairs at FTX “. Before finalizing the takeover, Binance wanted to verify the accounts of FTX.
A spokesperson said that ” suspicious and troubling elements, indicating that users’ funds have been mismanaged by the platform, have been identified “. Ultimately, the acquisition will not take place. Binance abandons FTX.
The tide is turning for crypto-assets
For the past few months, we have felt that the cryptocurrency market is approaching a major turning point. There have been the collapse of bitcoin. Today it is worth $16,700, down from a record high of over $60,000 about a year ago. Sometimes considered ” the new digital gold “, being able offer price stabilityguarantee of authenticity and protection against the arbitrariness of governments, crypto-assets prove to be extremely volatile.
More recently, Reuters revealed that the cryptocurrency crash hurt North Korea’s economy. The stolen and unlaundered funds have lost a lot of value. Indeed, this collapse of the ecosystem clearly calls into question the finances of the country which had built a new model dependent on these values.
With the fall of FTX there is the fear of a spillover effect. If the repercussions on the stock markets seem limited for the moment, the fear of a contagion is real. Kris Marszalek, the boss of Crypto, another crypto-asset exchange, spoke live this weekend to deny rumors that his company is also in trouble. At the origin of this information, a transfer of ethers worth 400 million euros to another platform last month.
Even Binance’s CEO is now advocating for a new form of regulation. He spoke on the sidelines of the G20 summit in Bali to explain that ” the crypto-asset market is brand new, we saw it last week, the situation is going crazy in the sector. We really need regulation, it has to be done properly and in a stable way “.
Today, the market capitalization of the cryptocurrency market contracted under the threshold of 900 billion dollarsup from $3 trillion last year.