The FTX Crash – What went wrong with the $32 Billion Crypto Empire?
2022 has been a roller-coaster ride in many ways. When it comes to the crypto world, the ride reached its highest & with the same acceleration, came to its lowest, leaving many of its riders in shock & terror. The ones who took a safe seat were the ones who had a balanced adrenaline rush. And those who were only the viewers missed both the terrifying and exciting parts. If you are yet to guess, this roller coaster ride is the collapse of FTX!
The world of cryptocurrency has experienced explosive growth in recent years, with the total market capitalization reaching over $3 trillion in 2022. Among the many players in this lucrative industry is Sam Bankman Fried’s $32 Billion Crypto Empire, which was in the spotlight for November and hasn’t stopped since.
In this article, we’ll explore what went wrong with the $32 Billion Crypto Empire and examine the factors contributing to the collapse of FTX. We’ll look at the whereabouts of the entire event and consider what the future may hold for the crypto world.
What is FTX?
FTX is a cryptocurrency exchange founded in 2019 by Sam Bankman-Fried, a former quantitative trader at Jane Street. The exchange gained popularity in recent years due to its focus on futures trading, allowing users to speculate on the future price of various assets and its competitive FTX withdrawal fees and advanced trading features.
FTX is a digital asset exchange that allows users to buy and sell a variety of cryptocurrencies, including Bitcoin, Ethereum, and Litecoin. In addition to spot trading, the exchange offers futures contracts, perpetual swaps, and other derivative products. FTX’s primary focus is on futures trading, which allows users to speculate on the future price of various assets by entering into a contract to buy or sell an asset at a predetermined price at a future date.
In addition to its trading activities, FTX exchange also made several strategic partnerships and acquisitions to expand its operations and diversify its offerings. For example, the exchange partnered with major industry players such as the Intercontinental Exchange (ICE) and the CBOE Futures Exchange (CFE). FTX also acquired some companies, including a mobile wallet provider called Amulet and a market intelligence platform called Blockfolio.
So, this is all about the concept of FTX. Next, let’s discuss the rise of FTX.
The Rise of FTX
Since its launch in 2019 and before the collapse, FTX experienced rapid growth and became one of the largest cryptocurrency exchanges in the world. According to CoinMarketCap, FTX exchange ranked among the top 20 exchanges by trading volume, with a 24-hour volume of over $3 billion. The exchange also attracted significant investment, with a valuation of over $31 billion before the infamous collapse of FTX.
FTX is also involved in several philanthropic efforts, including supporting charitable organizations and causes related to education, healthcare, and environmental conservation. The exchange has also sponsored various esports events and hosted a cryptocurrency-themed TV show called “Crypto Craze.”
Over just three years, FTX has achieved a valuation of $32 billion and gained the support of several prominent investors, including Paradigm, SoftBank, Sequoia Capital, and Temasek of Singapore. However, recently, venture capital firms Sequoia and Paradigm have reportedly written off their investments in FTX, valuing them at zero.
Now, you know what FTX is and how it rose to become this successful. Let us move on to understand the collapse of FTX.
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The Collapse of FTX
Before understanding the collapse in detail, you need to know that it happened because of the symbiosis of FTX & Alameda.
What is Alameda? Alameda Research is a quantitative trading firm founded in 2013, also by Sam Bankman-Fried, CEO of FTX. Alameda Research uses advanced algorithms and high-speed trading techniques to trade a wide range of financial instruments, including futures, options, and cryptocurrencies. The company is known for its expertise in high-frequency and algorithmic trading, and it has a reputation for being one of the industry’s most successful and innovative trading firms. Alameda Research is based in San Francisco and has offices in several other locations worldwide.
In addition to its trading activities, Alameda Research is also involved in the development of financial technology (fintech) products and services. The company has created several products and platforms, including a cryptocurrency trading platform called Alameda Tech, a cryptocurrency liquidity provider called Alameda Liquidity, and a decentralized finance (DeFi) protocol called Serum.
Alameda Research is known for its commitment to research and development. The company has a team of experienced professionals dedicated to constantly improving and optimizing its trading strategies and technologies. The company also established partnerships with major industry players, such as the Intercontinental Exchange (ICE) and the CBOE Futures Exchange (CFE).
So, this is all about Alameda. You already know what FTX crypto did- As a cryptocurrency exchange, FTX provided a range of services, including the ability for users to connect their wallets, and digital trading assets, exchange cryptocurrencies, engage in derivative contracts, and purchase or sell NFTs.
The connection between FTX and Alameda revolved around a token called FTT that FTX customers could use to trade their cryptocurrency assets. Alameda acted as the primary market maker for FTT, purchasing and selling a large portion of it. Investors on the exchange were drawn to FTT due to the trading discounts it provided, and Alameda began using its FTT holdings as collateral for additional loans to support its trading endeavors.
However, when the crypto market began to decline, the value of FTT decreased, and Alameda had difficulty paying back its creditors.
After a period of just ten days, during which Bankman-Fried frantically attempted to secure billions of dollars to rescue FTX, the exchange collapsed due to customers withdrawing their assets from the business amid concerns about its financial stability and the connection between FTX and Alameda.
The filing in a Delaware federal court included FTX’s US entity, Alameda Research, and approximately 130 affiliated companies.
Thus, within 10-20 days, this roller coaster ride touched its peak and came crashing down at double its speed. And this is what the collapse of FTX is all about!
Next, let us figure out why the depositors have gone to panic.
Why Have The FTX Depositors Gone To Panic?
On November 11, 2022, FTX crypto filed for Chapter 11 bankruptcy protection, and Bankman-Fried resigned. According to John J. Ray III, the new head of the cryptocurrency exchange, the collapse of FTX is caused by “a complete failure of corporate control.” Ray, who has experience with major business failures such as Enron’s collapse in an accounting scandal in 2001, mentioned in a House hearing on December 13, 2022, that FTX displayed “old-fashioned embezzlement” and that investors and creditors are not likely to recoup all of their money.
Hearing these words, any investor would panic & the same is happening with the investors of FTX. Let’s just wait & watch what the future holds for the investors.
Why is FTX Not Allowed In The US?
FTX is not available to users in the United States due to regulatory restrictions. In order to operate in the US, cryptocurrency exchanges must be registered with the Financial Crimes Enforcement Network (FinCEN) and comply with various state and federal regulations. FTX has yet to obtain the necessary licenses to operate in the US, so it is unavailable to US users.
Is FTX Still Trading?
FTX is a now-defunct cryptocurrency exchange. After the collapse of FTX & the following events, it isn’t allowed to trade anymore.
So, this crypto giant isn’t trading after the crash. The crypto industry’s reputation has been harmed, and people’s trust has been shaken, but you need not worry because still, there are robust players in the industry who care about their investors, their values, & their legacies. Let us look at one such fantastic hedge fund in the next & final section.
The Bottom Line
We have seen how this roller coaster ride created a lot of havoc in the industry this year. This brought many questions on the industry & its future, but we should remember that the industry is in the safe hands of titans like Secvolt.
Despite the wafer-thin delicate movements in the market & industry, Secvolt (www.secvolt.com), the quant hedge fund, generated record-breaking results. With its brilliant quant models & super-effective risk management systems, Secvolt has terrific control over market volatility & clients’ portfolio movements. Owing to the same & multiple other exceptional features, this hedge fund gave year-to-date results as amazing as 262.1%.
Thus, if you think this collapse of FTX is the beginning of the crypto industry’s doom, you are absolutely wrong. There are still contenders like Secvolt that are transparent, reliable, ethical, and serve their clients nothing but the best. Secvolt is your savior!