Sam Bankman-Fried was one of the most famous crypto personalities in the world. Without exaggeration, he was heralded as the savior of crypto.
Nevertheless, his crypto empire ceased to exist. What is behind the FTX crypto crash? Let’s find out!
In order to understand the whole picture, it is desirable to learn more about the founder and former CEO of FTX, which was one of the largest crypto exchanges in the world.
Interestingly, the above-mentioned crypto exchange’s former CEO vaulted to celebrity with his attempts to make FTX a household name.
What’s important, many famous athletes, as well as musicians, participated in FTX advertisements. For example, Tom Brady and his then-wife Gisele Bündchen. Moreover, the crypto exchange’s founder and the crypto exchange were among the biggest donors in the midterm election cycle.
We also need to mention that Bankman-Fried extended loans in order to support other crypto firms.
So, what happened to one of the most famous crypto exchanges?
As a reminder, he created FTX. However, before creating the above-mentioned crypto exchange, he founded Alameda Research. What’s interesting, Alameda Research became a major player in the crypto market making as well as institutional trading. Importantly, Alameda Research’s founder recruited Caroline Elisson.
Both of them worked for Jane Street Capital when they met for the first time. Caroline Elisson later became chief executive of Alameda Research. As a reminder, its founder remained the CEO of the above-mentioned crypto exchange.
But even when he was no longer in charge of Alameda Research, Bankman-Fried still owned 90% of Alameda Research based on the information taken from bankruptcy filings. Furthermore, Alameda Research also traded on the crypto exchange founded by Bankman-Fried.
FTX crypto crash and Alameda Research
According to Bankman-Field, Alameda Research didn’t have any special privileges on FTX. However, the situation is more complicated than it might appear at first glance.
Alameda Research had a “secret exemption” from FTX’s process for liquidating bad trades, according to bankruptcy filings. Thanks to a “secret exemption,” Alameda Research could take on more risk compared to other customers.
It is worth noting that Alameda Research spent a lot of money in order to buy stakes in startups. What’s interesting, Alameda Research used FTX’s own cryptocurrency as collateral for borrowing.
Moreover, the above-mentioned crypto exchange’s SEO and Caroline Elisson were at times romantically involved.
The biggest problem is the price of cryptocurrencies. As a reminder, the price of cryptocurrencies plunged earlier this year. As a result, Alameda Research’s risky bets became a serious problem. FTX’s founder tried to stabilize the situation.
One of the largest crypto exchanges in the world made the decision to lend billions of dollars worth of customer assets to assist Alameda Research in dealing with its funding gap.
What’s important, the above-mentioned crypto exchange’s situation worsened on November 2. On that day, CoinDesk published a report. According to CoinDesk’s report, the financial health of FTX was far from ideal. The situation regarding Alameda Research was also quite difficult, according to the same report. The report indicated that the vast majority of Alameda Research’s balance was made of FTX’s own cryptocurrency, FTT.
The above-mentioned report had a serious impact on the situation. For example, Changpeng Zhao decided to get rid of his FTT holdings. Unsurprisingly, many users also decided to get rid of their FTT holdings.
Interestingly, FTX was struggling to cope with problems. It even agreed to sell itself to its rival, Binance. However, Binance changed its position regarding FTX.
Shortly after, Bankman-Fried left his post. So, he is no longer in charge of FTX. Moreover, one of the largest crypto exchanges in the world filed for bankruptcy.
FTX and the legal side of the topic
As stated above, the situation regarding FTX is far from ideal.
John J. Ray is the current CEO of FTX; he replaced Bankman-Fried, who was the previous CEO of FTX. It is worth noting that he has helped oversee some of the highest-profile bankruptcies in history. For instance, Enron.
Even John J. Ray was surprised when he started to realize the severity of the problem. According to the current CEO of FTX, he has never seen anything as bad as the above-mentioned crypto exchange.
Recently, FTX made its appearance in Delaware bankruptcy court.
In a court filing, FTX’s new CEO described the disarray at FTX as unprecedented. He stated that supervisors used to approve payment requests with emojis.
Moreover, corporate funds were used in order to buy homes for people who worked for FTX. Furthermore, the crypto exchange’s founder used an auto-delete function. As a result, his messages were erased after a short period of time. He encouraged people who worked for FTX also to use the auto-delete function.
One of the main questions is, “Will users ever see their money again?” Unfortunately, it is very hard to say for sure.
Even the crypto exchange’s current CEO and those working with Ray don’t know how much cash or crypto they will eventually find at the above-mentioned crypto exchange.
It is noteworthy that one of the largest crypto exchanges in the world is in trouble. We need to mention that the crypto exchange founded by Bankman-Fried owes its 50 largest creditors billions of dollars, more precisely $3.1 billion. So, FTX has to pay more than $3 billion to its largest creditors.
Apart from the above-mentioned creditors, the crypto exchange has many other creditors. According to FTX’s lawyers, there may be over 1 million creditors.
Let’s focus on one interesting fact for a second. The crypto exchange’s founder cashed out $300 million out of a $420 million funding round. What’s interesting, over $370 million appears to be missing as a result of a possible cyberattack. The cyberattack mentioned above happened after the bankruptcy filing.
The list of problems is quite long. What you need to know about the FTX crypto crash is that the authorities are investigating the crypto exchange. The Justice Department and the Securities and Exchange Commission (SEC) are investigating the crypto exchange founded by one of the most famous crypto personalities in the world.
FTX and BlockFi
Unsurprisingly, the FTX crypto crash is a very serious issue. Its collapse is reverberating throughout the crypto industry. FTX played an important role in the crypto industry.
However, we shouldn’t forget about other companies. BlockFi is one of them.
BlockFi is also struggling to deal with problems. It is worth mentioning that the company also has filed for bankruptcy in the US.
Importantly, BlockFi had already halted the vast majority of activities on its platform due to “significant exposure” to the crypto exchange founded by Bankman-Fried.
What’s interesting, FTX helped to save BlockFi earlier this year.
However, this time the situation is absolutely different. Why? FTX won’t be able to save BlockFi.
As stated above, the crypto giant is in trouble. The crypto exchange’s CEO, Bankman-Fried, left his post this month. Moreover, FTX declared bankruptcy.
As a reminder, BlockFi offered loans as well as other financial services supported by borrowers’ crypto assets.
BlockFi and its problems
According to BlockFi, it owes money to over 100,000 creditors. We need to mention that BlockFi listed FTX as its second-largest creditor. BlockFi owes FTX $275 million.
Furthermore, BlockFi owes tens of millions of dollars, more precisely $30 million, to the Securities and Exchange Commission. According to the commission, BlockFi didn’t properly register its products and misled the public regarding the risk levels in its loan portfolio as well as lending activity.
The company said the Chapter 11 bankruptcy filing would allow it to create a reorganization plan. Based on the information provided by the company, it has more than $256 million in cash on hand.
Its history dates back to 2017. The goal of BlockFi was to serve as a liaison between cryptocurrencies and traditional financial products.
BlockFi raised hundreds of millions of dollars from famous tech investors. For example, Tiger Global and Capital Ventures invested in BlockFi. In 2021, as the price of cryptocurrencies skyrocketed, BlockFi said it managed over $15 billion in assets.
Voyager Digital and Three Arrows Capital
The price of Bitcoin has changed numerous times since the beginning of the year. The price of the world’s largest cryptocurrency in terms of market capitalization fell from over $64,000 a year ago to less than $20,000 in June. The situation regarding the price of Bitcoin had a serious impact on the companies.
The state of Voyager Digital is also far from ideal. The company filed for Chapter 11 protection this summer. Interestingly, Voyager Digital filed for Chapter 11 protection after the crypto hedge fund Three Arrows Capital defaulted on a loan. The above-mentioned crypto hedge fund defaulted on a loan from the company worth $670 million.
Unfortunately, users have been unable to retrieve their funds since Voyager Digital paused withdrawals amid a crypto crisis.
To sum up, the FTX crypto crash had a significant impact on the crypto industry. Nevertheless, the crypto industry has the potential to regain its position.