“We have so much liquidity that for us buying an investment bank like Goldman Sachs is not a problem at all.” July 2021. Sam Bankman-Fried, 31, issues a statement to the Financial Times that stuns the world of finance. It was the golden time of crypto. And he, founder of one of the leading digital asset exchange platforms, Ftxhe was considered the Warren Buffet of new finance.
Today, Ftx has gone bankrupt. Bankman-Fried resigned. His company, based in the Bahamas, was managing almost a third of the cryptocurrency exchanges in the world until a few days ago. It had come to be valid 32 billion dollars. Then the discovery of an 8 billion hole. In fact, this is the biggest crash in the crypto world since this industry was born.
With consequences that are still difficult to calculate because venture capital funds, American pension funds and investment banks have invested in FTX over the years. The shares of FTX in the US were classified as blue chips, therefore a safe company, a recognition that in fact made it a good deal in the eyes of investors. Until a few weeks ago.
What is Ftx. The role of exchanges
Ftx is a service that allowed the trading of cryptocurrencies. It is much more popular in the US than elsewhere, along with Coinbase. Exchanges are those platforms that have actually allowed crypto to become popular. To reach the general public. From micro investors to institutional funds.
Binance is the largest exchange in the world with a trading volume of around 25 billion. It is very well known especially in Europe, where it has sponsored dozens of events in the sector, and in Italy it is the main sponsor of Lazio. Coinbase is the second with 3.5 billion. Ftx was the third, just below Coinbase. In the world there are 524.
They are a fundamental piece of the ascent of cryptocurrencies of the last 5 years, which saw the sector of digital assets touch the 3 trillion in value a year ago. Today the value has dropped more than two thirds. And the collapse of Ftx has triggered a new downturn in the bitcoin galaxy which currently burned 4% of capitalization in 12 hours.
The (recent) origin of the Ftx crisis
The FTX crisis went public with a tweet on November 7th. The author is Changpeng Zhao, founder of the largest crypto exchange in the world, Binance. And one of the profiles, perhaps the most authoritative and followed profile in the crypto world. Changpeng (mostly known as CZ) is a semi-deity for the industry.
On social media, confirmation of the rumors that appeared in a trade newspaper a few days earlier: Ftx risks insolvency and he himself will sell all his Ftx tokens. Tokens, or tokens, are in fact the tool that allows an exchange to buy and sell crypto. Its founding value.
It is quite common for an exchange like Binance to own tokens from another exchange. Crypto is a rather interconnected market. For Changeng, the value of the Ftx tokens was no longer there. The effect is panic.
Investors begin to sell their crypto on Ftx: they withdraw 6 billion in a few hours and condemn the company to insolvency. Bitcoin loses 20%. It drops below $ 17,000 and the crypto industry burns $ 300 billion. Ntx (and its Ftt token) lose 90% of its value. The effect on the sector is a massacre.
What Caused Ftx
Changpeng with that tweet confirmed a Coindesk report published on November 2. Ftx is insolvent, she argued. The cause is Alameda Research. Another element to complicate an already complicated picture, but essential to understand what happened.
Alameda is a trading company founded in 2017 by Bankman-Fried, two years before he founded the FTX exchange. It is in fact the heart of the entire empire of the thirty-year-old American. As of June 2022, it was in possession of 14.6 billion in assets. But most of these assets were FTX (FTT) tokens. Assets that have enabled it to access $ 7.4 billion in loans, Reuters writes.
But as the crypto market collapsed, those tokens began to be worth less and less. Insufficient to repay debts.
Collapse of the Bankman-Fried empire
Bankman-Fried Castle is close to collapse. Changpeng shortly thereafter said he was willing to buy Ftx. To save her. To safeguard society, investors, and perhaps even himself, because everyone feared, and today fear even more, the domino effect for the entire industry.
His Binance and Ftx – sworn enemies until recently – find an agreement. Not binding. Changpeng and his watch the Ftx books. They see that everything Coindesk reported is true. Alamanda and Ftx are a mess. And a few hours later they let it be known that the deal is up. It can not be done. Ftx is not saveable.
The Lehman Brothers of cryptocurrencies
Analysts already refer to Ftx as Bitcoin’s Lehman Broders. Comparison not risky. Exchanges like Ftx were born to popularize crypto. That’s where the layman buy Bitcoin. Saving exchanges means saving billions of savings and investments: “The risk is that chain failures begin. And the more the price falls, the higher the risk becomes ”, comments a The print Antonio Simeone, head of the Eucklid fund.
“The protagonists of the crypto world must save themselves. And try in every possible way not to make the whole market collapse ”, which today is worth about one trillion dollars. A race against time. Ftx now seeks help. It will come from a rival platform. Any. Aware that her bailout (at least 4 billion is needed) concerns herself to some extent. The problem is more extensive.
Simeone (Eucklid): “The crypto world is decentralized in the abstract”
Beyond Ftx. Beyond Binance, it concerns the entire world of exchanges and the cryptocurrency market: “Trust in these assets is failing. If bitcoin drops in price, would there still be young people willing to spend a lifetime in front of the screen? Because when the price goes up it is much easier to trade while when traders in the crypto world are willing to lose and for how long? ”, He reasons.
Exchanges have popularized the crypto market. Actors like Coinbase have become sentinels of the new finance. “So, in my opinion”, continues Simeone “they try to save as much as possible this market, which is still very little transparent, as we have been noticing for some time. And they try to save these exchanges that seem to be doing opaque operations for their own survival “. Sometimes, however, they cannot be saved. Today the whole department is licking its wounds. And he knows it will be difficult to get up.
Eric Demuth, founder of Bitpanda, the leading European digital asset trading platform, summarizes the moods of entrepreneurs working in this sector: “What happened will hurt. Very bad. And for a long time.”