Until recently, FTX Trading was the toast to the cryptocurrency world.
In 2021, the company’s revenue will soar more than 1,000% to $1 billion. This is because it capitalized on public interest in the wealth-building potential of digital currencies. FTX also promoted its brand with flashy Super Bowl ads featuring quarterback Tom Brady and comedian Larry David. Highlighting its meteoric rise in the corporate world, the company purchased the naming rights to Florida’s American Airlines Arena for his $135 million and renamed it FTX Arena.
A year later, FTX is now on the brink of bankruptcy, facing billions of dollars in losses and a federal investigation. The company’s blazing rise and sudden plunge, along with the fortunes of its esteemed founder and CEO Sam Bankman-Fried, resemble the dizzying shake of cryptocurrency itself.
transaction went wrong
FTX’s rapid turnaround in fortunes has shocked the cryptocurrency world.Chao Changpeng, CEO of rival crypto exchange Binance, said on Tuesday that his company get FTXbut he I stopped moving after a dayhas cast doubt on the economic viability of FTX.
In a subsequent conference call with investors, Bankman-Fried said FTX needs about $8 billion to back up the crypto assets users have on the platform, Bloomberg News reports. rice field. According to Bloomberg, he also said the company may have to file for bankruptcy in the absence of an imminent cash infusion.
FTX did not immediately respond to a request for comment.bankman fried murmured On Thursday, FTX “is spending the week doing everything it can to increase liquidity.”
“That and every penny in existing collateral goes directly to our users unless or until we do the right thing with them,” he tweeted.
The bankruptcy of the world’s third-largest cryptocurrency exchange will shake up an industry that has long received unwanted attention from financial regulators and lawmakers, experts told CBS Moneywatch.
“The loss of $8 billion worth of client assets would come as a psychological shock to the industry,” said Josh Peck, a cryptocurrency risk expert. “That’s a big deal. People will distrust you. [and] They will say things like Bitcoin is over. ”
Adding to FTX’s predicament, the Associated Press reported that the U.S. Securities and Exchange Commission is now investigating the company for possible violations. , is trying to determine whether the client’s funds have been used to place risky bets on the market.
deluge of drawers
FTX’s liquidity problems began months ago when Bankman-Fried said he used incorrect data to make financial forecasts for the company.
In a series of apology tweets, the CEO said he mistakenly believed he had enough cash on hand to pay 24 times what users normally withdraw in a day. In fact, FTX only has enough cash for him to pay 0.8x. This is a very dangerous cushion for cryptocurrency exchanges. This miscalculation led him to haunt FTX amid massive withdrawals by users last weekend.
“Of course, because when it rains, it rains heavily,” Bankman-Fried tweeted. ”
Sale of major cryptocurrencies started late last year We also take some responsibility for what’s happening at FTX right now. Popular tokens like Bitcoin, Ether and Ripple have all lost their value in recent months. There are casualties in Celsius, Coinbase, etc..
In response to the crypto crisis, FTX lent $500 million to Voyager Digital in June, hoping to help the crypto lending platform weather a longer-than-expected downturn, CNBC reported. . The move proved costly for FTX. Voyager Digital filed for bankruptcy a month later, and FTX subsequently paid $51 million to buy Voyager.
FTX took another economic hit when Binance offloaded its remaining FTX tokens, called FTT, which it received as part of its $2.1 billion exit from FTX last year.
“Due to recent revelations, we have decided to liquidate the remaining FTT,” Zhao tweeted on Sunday.
Bankman-Fried didn’t mention bankruptcy in its tweet, but vowed to do the right thing for its users. However, FTX suspended withdrawals on Thursday. Even if the company doesn’t go bankrupt, the move hurts customers, Peck said.
Peck said there are about a dozen other “high quality” exchanges in the crypto sector to absorb demand, despite the likely shock to the industry if FTX collapses. rice field. He said the value of most cryptocurrencies probably won’t move either, except for one.
Alameda Research owns a large amount of solana, and in the event of bankruptcy, these coins will likely be frozen for an unknown period of time.
“It will still be dire because FTX customers will lose a lot of money,” Peck said. “But eventually the industry will adapt to this.”
