A crypto breakdown for our times
The Cryptocurrency world has been reeling after the exchange FTX filed for bankruptcy under American laws recently, effectively casting aspersions on the entire industry.
The pioneering company’s valuation plunged from USD $32bn to bankruptcy in a matter of days, dragging down founder and CEO Sam Bankman-Fried’s (aka SBF) $16bn net worth to near-zero. This is a double whammy, as not only was FTX a leading light of the crypto world but Bankman-Fried himself was seen as somewhat of a visionary.
FTX’s collapse has shaken the volatile crypto market, which lost billions in value, dropping below $1 trillion. The ripples will likely turn to towering waves and impact cryptocurrencies well into the future and could even strafe wider markets.
How did we get here?
The Cryptocurrency exchange FTX collapsed in early November 2022 following an investigation by CoinDesk, exposing leverage and solvency issues, centred on the trading firm Alameda Research – another company owned by the the mercurial SBF.
Word spread that FTX was possibly insolvent, and mass withdrawals followed.
FTX then faced a severe liquidity crisis and a search for bailout cash. The rival exchange Binance mulled over buying bits of the company but rapidly pulled out.
By November 11, FTX’s CEO stepped down and the company filed for bankruptcy. And to add to their woes, immediately after the bankruptcy news, FTX was hit by a possible hack in which hundreds of millions worth of tokens were stolen.
The knock-on effect
The dramas at FTX have impacted the rest of the crypto market, with currencies such as Bitcoin dropping 20%, and putting pressure on other companies to be more transparent and affirm their financial fortitude.
Several companies in the sector had already collapsed or approached collapse earlier this year, after a sharp downturn in the value of digital assets. BlockFi, another crypto firm with ties to FTX, stopped customers from making withdrawals because of the saga.
“FTX going down is not good for anyone in the industry. Do not view it as a win for us. User confidence is severely shaken,” said Changpeng Zhao, the chief executive of Binance, in a memo to his staff, that he later also tweeted.
The cyber lining
A favourite quote among people of power, from business titans to mob bosses – real and fictional – is from Sun Tzu’s The Art of War: “in the midst of chaos, there is also opportunity”.
While some see FTX’s troubles as a major blight on a still young industry, other night see it as a necessary evolutional adjustment – what is left will be stronger, wiser and more rewarding.
Regulators have long warned of risks to crypto investors and raised concern about the threat of wider financial turmoil, as traditional financial companies expand their investments in the market, despite little regulation. But could this cataclysm herald a safer and more accountable era for clients and dealers alike?
Some analysts do not think FTX’s troubles would spark wider problems in the stock market, but the question many investors should ask: is where to place your faith and cash now in a market that could become more robust. It seems like the ‘contagion’ of FTX’s collapse is surely not over, where networks such as Genesis, starting to halt withdrawals, and investors like Singapore’s Temasek writing down a $275mn investment.