FTX, the world’s third-largest crypto exchange, a company valued at $32 billion collapsed within days.
The year 2022 seen some of the worst crashes, including the Terra LUNA crash, the Axie Infinity Ronin bridge attack, and most recently, the fall of the FTX exchange, which was previously the third-largest cryptocurrency exchange in the world by volume. We’ll be looking more closely at the sequence of incidents that resulted in the demise of the FTX exchange in this post.
Timeline-How FTX, the third-largest cryptocurrency exchange in the world, collapsed.
Alameda Research is where the tale begins. Sam Bankman-Fried established Alameda in 2017 as a cryptocurrency-focused proprietary trading business. They made money by buying and trading cryptocurrency. They made a lot of it as well. Sam quickly came to the conclusion that he desired more. He wasn’t only interested in trading cryptocurrency. His goal was to assist others in doing the same.
So he created FTX, an exchange (in 2019): FTX.COM was founded by former Wall Street trader Sam Bankman-Fried and ex-Google employee Gary Wang.
2021:July – FTX was valued at $18 billion in a $900 million fundraising deal.
FTX and the Formula 1 team for Mercedes struck a sponsorship agreement in September.
In October, FTX secured money from investors including Singapore’s Temasek and Tiger Global at a valuation of $25 billion.
2022: On January 27, FTX’s U.S. division announced that it had raised $400 million in its initial investment round from investors including SoftBank and Temasek, valuing the company at $8 billion.
FTX raised $400 million from investors, including SoftBank, on January 31 for a $32 billion value.
On June 4, FTX reportedly agreed to pay $135 million for the naming rights to the Miami Heat’s home court.
On June 4, FTX reportedly agreed to pay $135 million for the naming rights to the Miami Heat’s home court.
On July 1, FTX and BlockFi agreed to a contract with an option for FTX to purchase BlockFi for up to $240 million. On July 22, FTX made a partial bailout offer to the insolvent cryptocurrency lender Voyager Digital. It was a “low-ball bid,” according to Voyager
So the real question here is — What gave way to the panic?
On November 2, the cryptocurrency news site CoinDesk revealed that a leaked balance sheet revealed that Bankman-cryptocurrency Fried’s trading company, Alameda Research, was largely reliant on FTT, the native token of FTX. The report couldn’t be confirmed by Reuters.
According to their study, the FTX had assets worth $14.6 billion as of June 30. The sum of $3.66 billion in “unlocked FTT” is its single largest asset. What is the accounting ledger’s third-largest entry under the heading “Assets”? A “FTT collateral” stockpile worth $2.16 billion.
Additional FTX tokens totaling $292 million in “frozen FTT” are included in its $8 billion in liabilities. (Loans totaling $7.4 billion make up the majority of the liabilities.)
Alameda is reportedly required to pay their loan $8 billion. However, the majority of the assets are in FTT, whose value can fall sharply. Alameda and FTX would both be in serious difficulty if its value did fall.
And indeed, that is what took place. People realised how fragile things were once they started hearing about this story. They could see how both businesses could easily capitulate. So they started taking their deposits out.
On November 6, Binance CEO Changpeng Zhao announced that his company would sell its FTT holdings as a result of unnamed “new developments.”
A few minutes later, Caroline Ellis, CEO of Alameda Research, declared that the company would pay $22 to purchase all of the FTT tokens
November 7th, Soon after, Sam Bankman-Fried made an appearance with his own set of tweets and accused the rival of “trying to go after us with false rumours.” He even continued, saying, “FTX is OK.” The assets are good. He continued by clearly refuting all of the accusations made against him and his businesses, FTX and the trading house Alameda Research.
Changpeng Zhao, the chief executive of Binance, announced November 8 that the business has signed a non-binding agreement to purchase FTX.com, a division of rival FTX, to assist address a “liquidity bottleneck” at the cryptocurrency exchange. Zhao stated that “FTX requested us assistance this afternoon. There is a serious liquidity crisis. We signed a non-binding LOI in order to protect users with the intention of fully acquiring http://FTX.com and alleviating the liquidity crisis. In the upcoming days, we will conduct a complete DD.”
SBF stated that FTX “The withdrawal backlog is currently being cleared by our teams. Liquidity shortages will be eliminated, and all assets will be covered exactly. One of the key reasons we invited Binance in is because of this. We apologise for any inconvenience. It may take a while to settle, etc “but emphasised that the customers’ interests would be safeguarded.
November 10 – Binance tweeted its decision to cancel the agreement with FTX. It read, “We have chosen not to pursue the potential acquisition of FTX owing to corporate due diligence, as well as the most recent news reports regarding mishandled client funds and alleged US government investigations. Our initial intention was to be able to assist FTX’s clients in providing liquidity, however the problems are outside of our control or realm of influence.”
On November 10, Bankman-Fried informed his team in a message that he was looking to raise cash and had spoken with Justin Sun, the creator of the cryptocurrency token Tron.
On November 10, Reuters reported that Bankman-Fried is attempting to assemble a rescue plan for FTX that might total up to $9.4 billion.
November 10 – FTX suspended on-boarding of new clients as well as withdrawals until further notice. SBF tweet below
On November 11th, FTX, its U.S. subsidiary, cryptocurrency trading company Alameda Research, and almost 130 other affiliates begin voluntary Chapter 11 proceedings in the United States. The CEO, Bankman-Fried, steps down.
November 12-At least $1 billion in customer funds have disappeared from FTX, according to Reuters.
On November 12– FTX said that it had found illegal transactions. Outflows between $473 and $659 million were predicted by blockchain analytics companies under “suspicious circumstances”.
November 13-Bahamas securities regulator opened an investigation into the collapse.
November 14: BlockFi, a prominent crypto lender that was bailed out by FTX earlier this summer, has announced that it is suspending customer withdrawals.
“We determined late last week that we could no longer conduct business as usual in the current environment. Given that FTX and its affiliates are now bankrupt, we believe it is in the best interests of all clients for us to continue to pause many of our platform activities for the time being “According to a company statement.
“Withdrawals from BlockFi are still halted at this time. We also continue to request that clients refrain from making any deposits to their BlockFi wallets or interest accounts.”
Federal prosecutors in New York are looking into FTX, according to ABC. Investigators want to know if the company violated securities laws when it gave Alameda Research customer funds.
On November 15, the Bahamas’ financial regulators appoint liquidators to run FTX’s unit in the country.
November 16: FTX describes a “severe liquidity crisis” in US bankruptcy filings, indicating that the group may have over 1 million creditors.
According to a court filing, FTX’s Bahamas unit, FTX Digital Markets, is seeking protection from creditors in the United States under Chapter 15 of the United States Bankruptcy Code. Investors are suing Bankman-Fried in a US court, claiming that the company’s yield-bearing crypto accounts violated Florida law. FTX Digital Markets’ liquidators “reject the validity” of FTX’s US bankruptcy proceedings. Genesis Global Capital, a major cryptocurrency player, has suspended customer redemptions in its lending business, citing the sudden failure of FTX.
November 17: The US House Financial Services Committee announces a hearing in December to investigate the collapse of FTX.
November 30: Bankman-Fried says in an interview at the New York Times Dealbook Summit that “he didn’t ever try to commit fraud”.
December 12 :Bankman-Fried was apprehended by police in the Bahamas, and the US is expected to seek his extradition. Authorities in the United States have declined to comment on potential charges, but the New York Times reports that they include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.
December 13: Bankman-Fried was charged with defrauding investors by the Securities and Exchange Commission in the United States.
December 19:Sam Bankman-Fried, the jailed founder of the collapsed cryptocurrency exchange FTX, has been extradited to the United States, where he faces criminal charges, Bahamian authorities said.
December 20:FTX new management says the company has located over $1 billion in assets, including $720 million in cash.
December 21:Sam Bankman-Fried signs legal documents to be extradited to the United States.
December 22:US Government files criminal charges against former Alameda Research CEO Caroline Ellison.
December 22: FTX founder Sam Bankman-Fried will be released on $250 million bail, a federal judge ruled, while he awaits trial for eight federal criminal charges related to alleged fraud at his collapsed crypto empire.
December 27: US government launches an investigation into the $372 million hack following FTX bankruptcy.
FTX has recovered more than $5 billion in liquid assets, including cash and digital assets, according to attorneys in Delaware bankruptcy court who testified during an FTX bankruptcy hearing on january 2023.
On January 3, Bankman-Fried appeared in court in New York and entered a plea of not guilty.
19 January – According to Chief Executive Officer John Ray of the bankrupt cryptocurrency exchange FTX, the company is considering reviving its operations.
On February 8 FTX has reportedly paid lawyers a total of $20.3 million within the first few months of its bankruptcy case.
On February 21 FTX Japan resumes withdrawals for both fiat and cryptocurrency.
On February 23, it was revealed through an unsealed indictment that SBF is facing multiple new charges, including bank fraud and running an unlicensed money transmitting business. Bankman-Fried is now looking at a possible 12 charges in total and is expected to face trial in October.
On February 23 FTX has reportedly sent “confidential letters” to politicians, demanding the return of millions of dollars donated by SBF before the end of the month.
WHAT SHOULD INVESTORS KEEP IN MIND?
Cryptocurrency has become a popular asset class in recent years and has shown a lot of potential for future growth. Despite its promise, there are several key points to consider before making any investment. First, cryptocurrency is an incredibly volatile market—often considered even more volatile than traditional investments. Additionally, there are currently no regulatory bodies overseeing the cryptocurrency market, making it difficult for investors to identify trustworthy investments.
It is becoming increasingly more important to be aware of the current market conditions when investing. The market is currently in a bearish phase, meaning that many investments that often perform well in bull markets may not be as successful. Mistakes are inevitable in such a new and young market, but it is important for investors to learn from their errors in order to increase their chances of success. Having knowledge of market trends is essential for any investor as it helps them to be better informed and make more informed decisions.
Naren is a finance graduate who is passionate about cryptocurrency and blockchain technology. He demonstrates his expertise in these subjects by writing for cryptoetf.in. Thanks to his finance background, he is able to write effectively about cryptocurrency.