If you have been trading cryptocurrencies for quite some time, you have most probably heard of FTX. The company was founded in 2019, it was considered to be one of the most stable and well-regarded companies in the crypto industry. Well, until recently that is.
The company was founded by Sam Bankman-Fried and headquartered in the Bahamas. On 11 November 2022, he tweeted that he filed for bankruptcy for all his companies.
Now, why would he suddenly file a Chapter 11? The New York Times reported that FTX has its own crypto token called FTT and traders use the token for operations like paying transaction fees.
Alameda Research, a hedge fund operated by Bankman-Fried, was said to have possessed an abnormally high number of FTT tokens, according to a leaked document that was published by the cryptocurrency site, CoinDesk, on 2 November. The investigation revealed that FTX and Alameda have strong financial relationships despite the fact that they are intended to be independent companies.
On November 6, Binance (the world’s biggest crypto exchange firm) declared that it will sell its FTT tokens “due to recent revelations.” As a result, traders quickly exited FTX out of worry that it would be yet another failing cryptocurrency firm, which caused FTT’s price to crash.
Over the course of three days, FTX rushed to execute withdrawal requests totaling an estimated USD6 billion. It appeared to experience a liquidity shortage, which meant that it was unable to pay for requests, even though Bankman-Fried said that the company is “100% liquid“.
On 9 November, Binance said that they would buy FTX, but a day later, Binance tweeted that they would no longer buy the company because of “corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations.”
FTX’s token, FTT crashed as a result of this news and at the time of writing, FTT has suffered a loss of -96.14% (YTD).
FTX also said that they were hacked after they discovered more than USD500 million have gone missing. The new FTX CEO, John Ray said that “unauthorised access to certain assets has occurred”.
