After undergoing the crypto equivalent of a bank run, the exploding cryptocurrency trading firm FTX is now short billions of dollars.
The exchange, which was once one of the largest in the world, filed for bankruptcy in November, and its CEO and founder quit. The trading firm afterward stated that there had been “unauthorized access” and that cash had vanished. According to analysts, hundreds of millions of cash may have vanished.
The demise of the once-dominant exchange has sent shockwaves through the industry. Here’s how one of the largest cryptocurrency exchanges ended up filing for bankruptcy.
Why Did Sam Bankman-Fried’s Crypto Empire Fail?
Clients deserted the platform due to fears over FTX’s sufficient capital, and the company agreed to be acquired by rival exchange competitor, Binance. However, the acquisition fell through while Binance was still conducting background research on FTX’s financial information.
According to its bankruptcy declaration, FTX assessed its holdings to be between $10 billion and $50 billion and listed more than 130 affiliated companies worldwide.
FTX and hundreds of related firms, including founder Sam Bankman-Fried’s hedge fund, Alameda Research, and declared bankruptcy in Delaware.
It was a bizarre turn of events for Sam Bankman-Fried, who had been welcomed as a hero early this year after contributing to the rescue of a number of cryptocurrency companies that had run into financial trouble.
Was There a Hacker?
FTX verified unauthorized access to its accounts, only hours after filing for Chapter 11 bankruptcy protection.
On social media, there was a debate about whether the exchange had been hacked or if a business insider had taken assets, which cryptocurrency analysts couldn’t rule out.
The exact amount of money involved is unknown, but the analytics firm Elliptic estimated that $477 million was missing from the transaction. According to FTX’s new CEO, John J. Ray III, the company is turning off the ability to trade or withdraw cash and is taking steps to establish a stricter oversight to secure consumers’ assets.
Is Your Bitcoin Safe?
People who hold bitcoin should be fine if they keep them away from exchanges like FTX, which function as a “crypto-casino gaming website,” according to Cory Klippsten, CEO of financial services provider Swan Bitcoin.
“Any exchange poses a security risk,” Klippsten warned. Some are more trustworthy than others, but he believes that taking control of your digital assets is a better option. “With a crypto asset like bitcoin, you have the option of taking self-custody and withdrawing your money from the exchange,” he explained.
Investigations on The FTX Group
The Royal Bahamas Police Force announced on Sunday that it is looking into FTX, adding to the company’s troubles. In a statement issued on Sunday, the police agency said it was collaborating with Bahamas securities authorities to “examine if any criminal activity happened” concerning the exchange, which relocated its headquarters to the Caribbean country last year.
According to a person familiar with the matter who spoke to The Associated Press last week on condition of anonymity because they could not discuss details of the investigations publicly, the US Department of Justice and the Securities and Exchange Commission began investigating FTX before the bankruptcy filing and missing funds to determine whether any criminal misconduct or securities offenses were committed.
The Fallout
Companies that backed FTX are writing down their investments, and the prices of bitcoin and other digital currencies have plunged. Politicians and authorities are pressing for more regulation of the crypto company. FTX announced on Saturday that it was transferring as many digital assets as it could identify to a new “cold wallet custodian,” which is simply a method of holding assets offline without allowing remote control.
FTX had entered into a variety of sports-related deals, some of which have fallen through. The Miami Heat and Miami-Dade County announced Friday that they will end their relationship with FTX and rename the team’s arena. Mercedes announced on Friday that it will immediately remove FTX badges from its Formula One vehicles.
What The Future Holds
Right now, the crypto sector is taking quite the beating and so are the crypto firms. With one of the largest exchanges losing valuable assets in a very short period of time. Prices in leading cryptocurrencies have dropped significantly since this incident and many crypto exchanges are at risk of losing customer funds.
Hopefully, John Ray III can redeem FTX back to its former glory, but for now, many questions and concerns need to be answered.
Where will this lead for crypto and these companies? Will the shock waves of FTX eventually subside? Only time will tell.
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