Hoping that crypto winter may have been coming to an end? Well, don’t get your hopes up. One of the biggest cryptocurrency exchanges has just filed for bankruptcy.
In a press release on Friday, FTX officially announced that the company would be filing for bankruptcy. This doesn’t just mean FTX.com, which covers the exchange’s global trading operations. The bankruptcy includes the trading firm Alameda Research and FTX’s U.S. affiliate FTX US.
This is notable as FTX Founder and CEO Sam Bankman-Fried, also known as SBF, frequently stated that FTX US’s operations were unaffected by the turmoil at FTX over the past week.
SBF himself has also resigned from the company. In his place, FTX announced John J. Ray III will take over as CEO. If that name sounds familiar to you, that’s because he was the guy who was brought in to clean up Enron after the energy-trading company collapsed.
The problems started for SBF’s now-failed crypto empire last week after two journalists, Ian Allison of CoinDesk and the anonymous Mike Burgersberg of the crypto newsletter Dirty Bubble Media, reported that SBF’s crypto trading firm, Alameda Research was likely insolvent. The bulk of the company’s assets were FTX’s own crypto token, FTT.
Both reports had access to Alameda’s balance sheets where there were clear liquidity problems, with the bulk of its assets in FTX’s own FTT token. The findings saw Burgersberg flat out question whether SBF’s empire was actually insolvent. The Wall Street Journal would later report that Alameda owed $10 billion to FTX for loans that were funded by deposits from FTX’s customers.
Changpen Zhao, also known as CZ, the founder of the world’s largest crypto exchange, Binance, soon announced that his company would be selling off its FTT holdings upon hearing the reports about Alameda. Within the following 72 hours, users began attempting to withdraw amounts totaling $6 billion from FTX.
On Tuesday, Binance, one of FTX’s biggest competitors, announced it had entered a non-binding agreement to bail out FTX and acquire the exchange. Essentially, this would’ve been a fire sale of a company that had entered talks to raise $1 billion at a valuation of $32 billion less than two months ago.
By Wednesday, Binance shared that it would not be going forward with its FTX acquisition after a due diligence investigation into FTX. Binance claimed that “the issues are beyond our control or ability to help.” According to CoinDesk, the U.S. Department of Justice as well as other regulatory agencies have reached out to Binance in order to find out just what it saw that made the company walk away from the deal.
Even after all of this was happening, SBF, who ironically became known for bailing out failing crypto companies previously, continued to claim that FTX US was a separate entity and not affected by the situation at FTX and Alameda. Again, FTX US is included in the bankruptcy filing.
The reverberations here will be felt across the crypto industry. When news broke about FTX’s problems this past week, Bitcoin dropped to under $16k, its lowest price since 2020.
The latest crypto crash started earlier this year when the stablecoin Terra and its sister token Luna failed. It created a domino effect which saw multiple crypto lending firms like Celsius and Voyager go under. If the industry was hoping that things would soon start to look bullish, the reality appears to be that it should be prepping for a very long winter.
