FTX, the third largest cryptocurrency trading platform in the world, is going bankrupt, and it was unbelievable to many, especially since FTX was seen as a stabilizing force in a field with many fluctuations. How did it get here? FTX founder Sam Bankman-Fried (SBF), also known as the “King of Cryptocurrency”, a superstar of the industry, also played an important role.

A year ago, the total cryptocurrency market was valued at around $3 trillion, but after a tumultuous 12 months with macroeconomic crisis and unusual crypto events, the total market reached $800 billion.

Critics of the field come and say over and over that there is a lot of risk involved and that nothing is certain when it comes to the crypto universe and the profits in it. Skepticism will grow, as will the voices of those who say these trading platforms are doing more harm than good.

FTX, the star that seemed all-powerful

FTX was founded 3 years ago, is based in the Bahamas (was in Hong Kong until 2021) and is managed from the USA (largest offices in Chicago and Miami). FTX had more than a million users and was one of the most respected companies in the cryptosphere, especially because they also invested in it by well-known investment funds that do not invest money anywhere. We can use the past tense because there is no chance of FTX becoming a force again.

As of early 2022, FTX was valued at $32 billion, and the NBA’s Miami Heat stadium was called FTX Arena.

Sam Bankman-Fried (abbreviated as SBF) was the CEO of FTX and became the most famous and respected person in the cryptosphere at the age of only 30. His fortune was estimated at around $25 billion and many believed that he was the man who showed the world that the field of cryptocurrencies was a serious future. He is known for many things, including playing video games during interviews with investors and journalists, as well as during meetings. He was a big fan of League of Legends.

Moreover, he has fallen out with other big names in the cryptosphere as he has supported the introduction of stricter regulations in the field in recent months.

FTX filed for restructuring and bankruptcy in the US on November 11, with founder Sam Bankman-Fried stepping down as group CEO amid a liquidity crisis that resulted in a freeze on user assets.

After the FTX announcement, the main cryptocurrency, Bitcoin, fell back below $17,000, a far cry from previous years’ highs of over $60,000.

Among the investors who put money into FTX are the big venture capital funds Softbak and Sequoia Capital.

Earlier last week, FTX suffered a major liquidity crisis after users withdrew $8 billion worth of Bitcoin and other crypto assets in just a few days.

The crisis began with an article published in early November on a website called CoinDesk, which claimed that an Alameda hedge fund owned by Sam Bankman-Fried had made a series of risky financial transactions that could affect the value of FTT. cryptocurrency, token created by FTX.

This is after a few days the head of the world’s number 1 crypto platform Binance announced that it will sell the amount of FTT it owns worth $500 million, citing irregularities that have come to light in recent days.

The value of FTT fell and FTX customers rushed to quickly withdraw everything they had, creating a situation similar to a “bank panic”, which occurs when people with bank accounts withdraw in large numbers, fearing that the bank will collapse . . Withdrawals on FTX have averaged two billion dollars per day, compared to the usual tens of millions of dollars.

Rival platform Binance, the global market leader, announced on November 8 that it intended to buy FTX to save it from collapse, but withdrew its non-binding offer the next day, citing its audits of FTX and a series of news reports about alleged violations. in managing customer accounts of this crypto exchange. If Binance had saved FTX, it is possible that it would have suffered the fate of this company.

SBF – Colossus with clay legs

Bankman-Fried’s collapse is all the more stunning given that the company said last month that FTX had bold expansion plans and was in talks with investors to raise money and begin “effective acquisitions.” He said FTX is a well-respected name that has many investors scrambling to cash in.

Bankman-Fried grew up on the campus of Stanford University, and his parents were professors at Stanford Law School.

He graduated from the Massachusetts Institute of Technology (MIT) and then became a trader, and in 2017 he founded the company Alameda, with which he aimed to launch a cryptocurrency exchange platform. His team was already making a million dollars a day in 2018, but that was just the beginning.

FTX launched in May 2019, Binance was one of the first investors, and FTX has grown rapidly.

The success came because the interface was great and the platform was well built, unlike the competition. As charismatic as SBF was, he was able to convince even the more cautious Silicon Valley investors that the funds were worth the money and that FTX was on its way to becoming a giant, reliable company.

Bankman-Fried was known to play video games and during interviews, as well as sleeping in his office on soft chairs.

It’s a paradoxical figure: He claims to have donated hundreds of millions of dollars to charity, but FTX paid $30 million for a five-bedroom penthouse, which the company boss says was used by 10 FTX employees.

In recent months, the former head of FTX has clashed with several people in the industry, including Binance CEO Changpeng Zhao, a company that supported FTX in its early days and at one point was willing to bail it out. He mocked Zhao for being born in China, which had been discussed earlier given the Chinese state’s fears of obtaining information on key US technology.

The downfall of FTX is that a monetary instrument is a form of credit, and any form of credit involves a greater or lesser amount of risk. Central banks and other regulators have been criticized, but their role is to step in when a major market crisis occurs and limit losses as much as possible.

FTX used billions of dollars of client money to finance risky operations and transactions through Alameda Research, also founded by SBF. These techniques surprised many SBF fans.

Sources: Le Monde, Wall Street Journal, Guardian, BBC, AFP

Photo source: Dreamstime.com