(Photo credits: Pexels – Worldspectrum)
At the beginning of last November, an epic battle took place between Binance, the leading cryptocurrency exchange in the world, and FTX, its challenger, through their respective leaders. FTX has recently been in bad shape, and a takeover proposal has been issued by Binance. The consequences were not felt for long, with the main cryptocurrencies taking a heavy hit in the next two days. Bitcoin, the behemoth of the crypto-sphere, fell by more than 10% in one day, other currencies were more affected, such as Solana which lost more than 30% or precisely FTX which fell by more than 70%.
What are the causes of this apocalyptic situation? How does it have such an impact on the market? What to expect next?
FTT SA ALAMEDA RESEARCH: THE BEGINNING OF BANGBULON
On November 2, CoinDesk media disclosed a close link between FTX and Alamada Research, the two companies of Sam Bankman-Fried (known as SBF). In fact, according to a financial document reportedly viewed by CoinDesk, Alamada Research’s assets as of June 30 of this year will contain $3.66 billion in “locked FTT,” out of a total of $14.6 billion. Obligations will reflect $292 million of FTT, out of a total of $8 billion. The problem is that “FTT” is the exchange token issued by the FTX company, which suggests that the SBF empire may have liquidity and insolvency problems.
Four days later, the CEO of Alameda Research, Caroline Ellison, spoke about the situation, specifying that this report relates to “only a subset of [nos] legal entities.”
INTERVENTION OF CZ ON TWITTER AND FALL OF FTT
Changpeng Zhao (known as CZ), CEO of Binance, announced on November 7, in reaction to these revelations, that it has made a decision to sell its 2.1 billion US dollars stake in FTX (including FTT and BUSD stablecoins ), which is considered specifically for risk. This announcement, made public on Twitter, was directly felt, causing the price of the native cryptocurrency FTX to fall by 30% overnight.
According to Bloomberg, FTX stablecoin reserves fell to $114 million on the same day from $394 million three days earlier.
Additional tweets were then posted on both CEO accounts, debating the creditworthiness of FTX. SBF claimed in these tweets that they had no problem processing withdrawals, and that the funds were safe.
INSOLVENCY OF FTX AND CAUSES
Despite attempts to calm down the SBF, investors are not convinced. The next day, Tuesday, November 8, FTT continued to fall as withdrawals piled up on the FTX platform. As more hours pass, fewer withdrawals are processed. At the same time, the price of FTT continues to decline. These events confirm the fear of investors, and the hope of seeing their funds one day becomes weaker for users.
FTX then said on twitter, the platform announced that it has started Chapter 11 bankruptcy proceedings in the United States. The world’s number 2 exchange has fallen under the American bankruptcy regime. The group then claims more than 100,000 creditors with debts estimated between 10 and 50 billion dollars.
The bankruptcy concerns FTX.com and FTX.us while FTX’s Bahamian subsidiary is not included in the restructuring plan. In addition, the CEO of the Sam Bankman-Fried platform, officially announced his resignation on Friday November 11. John J. Ray III was appointed as interim CEO until the light shines on this story.
Many users lost their entire portfolio, withdrawals were blocked for them, either in the United States or in the European zone. In fact, as of Friday, it seems that no withdrawals have been finalized on the platform. This decision will come from the new management of FTX.
Partners, for their part, are fleeing to avoid tarnishing their exchange image: Visa has announced that it has ended its crypto-card partnership; Mercedes, which has signed an agreement to promote the FTX in its single-seaters in F1, has announced that the agreement has been suspended and continues to closely monitor the situation. On the basketball side, the Miami Heat team also ended their contract, leaving behind the name “FTX Arena” for their stadium.
TEACHING HELL
FTX’s descent into hell continues even beyond its bankruptcy announcement for the exchange platform. This one actually reported being hacked and robbed of several hundred million dollars. Some media mention more than 600 million. The platform then came out saying that its security was compromised and advised not to log into the app or website.
For its part, Tether was able to blacklist $31.4 million related to FTX hacks (in the form of USDT), preventing hackers from using it. Some news came to worsen the fate of the former CEO of FTX: in fact he transferred 10 billion dollars from the funds of users without their knowledge to Alameda Research, and investigations show that between 1 and 2 billion will withdraw (in an unknown way) and therefore not even invest, which makes the situation more critical.
On the other hand, the employees of the bankrupt exchange and Alameda Research are said to have been heavily influenced to deposit their capital in FTX, amid false promises and lies, leaving them in the same place as other users. Additionally, The Block reports that FTX has initiated more than 10 Bahamas real estate buyouts for $74 million.
The fate of SBF is not yet known, but the latest news is that he is in the Bahamas, where the police are questioning him, and investigators from the Financial Crimes Unit have come to help investigate possible actions. The CEO of Alameda Research will try to join Dubai, which does not have an extradition treaty with the United States.
CONFUSING CONSEQUENCES
This series of events that marked the defeat of the second largest cryptocurrency exchange in the world was naturally without consequences.
After the FTT token, the entire crypto-sphere was affected. Whether it is the liquidation of billions of assets on the platform, the withdrawal of investors during these events, or even the confidence in these assets falling to the lowest point, the market of cryptocurrency took a big hit, losing more than 25% of its weight, or more than 250 billion dollars went up in smoke.
The consequences will certainly be felt in the long term as well: the confidence of investors, institutions and, to a large extent, the general public is greatly affected, and the risks are more difficult to recover.
The image of the “crypto” universe actually takes time to build in the right direction, it remains very controversial, especially among the oldest generations. Judged as dangerous, inscrutable and especially abstract by many people, the crypto-sphere will have a hard time restoring its image after these latest incidents.
But that’s not all. From this effect comes another, which affects the market, its movement, and the concept behind cryptocurrency: regulations.
The basic idea of these currencies is an idea of total transparency: to be accessible to all, for all, to all, and not governed or controlled by various regulations and institutions. It is from this philosophy and this idea that all the innovations involved in this ecosystem are derived.
IN THE SCRIPTURES
It is also very clear that this “ideology” does not please the financial world, which has been trying for many years to undermine and control this crypto-sphere like “traditional” investments under the guise of “security”. . An event like the defeat of FTX is a boon for these institutions: it opens the door to regulations and new laws to “protect investors” and thus maintain control over the market. This is contrary to all the principles and foundations of the blockchain, and risks disappointing many investors who truly believe in this technology, in addition to completely preventing the realization of what cryptocurrencies actually create.
Ultimately, beyond the economic consequences, it is the investors who are affected. Many people were affected by this disaster, many lost all their savings, indeed suffered a devastating psychological and moral impact. Trust in various exchanges has weakened, and the sad and famous saying “not your key, not your money” is once again taking its toll.
Directed by Mathis Erba, Charles Dhennin assisted by Marc Dagher
The article was originally published on DT Expert
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