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FTX Crashes: Everything You Need to Know

PUBLISHED Nov 21, 2022, 10:27:16 AM        SHARE

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imgTobi Opeyemi Amure

The fall of FTX has been the talk of the town, especially for those who have been in the cryptocurrency field. However, for amateurs and those who are just starting out, there may be many things you need to understand. First off, we hear of FTX losing a whooping sum of $2 trillion in May. This alone had shook the pillars of several companies and led many others to the dust. FTX itself was on the edge and about to tip off as well when their rival, Binance, came to the rescue. At least, Binance made it seem so. Suddenly, to the surprise of the entire crypto-universe, Binance announced that they were pulling out of the deal. What really transpired between the companies? What are the minute details you need to be aware of for a way forward with all of this? Carry on with this exciting article for a comprehensive discussion on this crypto crisis of 2022.

About FTX

When it comes to Bitcoin derivatives and leveraged products, one needs to look no further than FTX Exchange. It is the industry standard for centralized exchange. This company is the brilliant initiative of Sam Bankman-Fried, an MIT alumnus. Sam, a former trader in international exchange-traded funds at Jane Street Capital, founded FTX in 2018. The company provides a variety of trading products, such as derivatives, volatility products, and leveraged tokens. In addition, it offers BTC/USDT, ETH/USDT, XRP/USDT, and FTT/USDT. It also offers spot markets in more than 300 cryptocurrency trading pairings. There are FTX management teams in the Bahamas and FTX US teams. Their activities are similar, although their financing structures are different. FTX's diverse offerings and user-friendly desktop and mobile trading programs appeal to crypto investors of all experience levels. From simple market orders to advanced trailing stop orders, its platform has everything. There are nine fiat core currencies that the platform supports, which are:

  • U.S. dollar

  • Euro

  • British pound

  • Australian dollar

  • Canadian dollar

  • Swiss franc

  • Brazilian real

  • Ghanaian cedi

  • Argentine peso There is also the Turkish lira and Japanese yen, but they have limited functionality. The Hong Kong dollar, Singapore dollar, and South African rand are set to join them shortly.

    About Binance

    Binance is a cryptocurrency exchange that operates online. Changpeng Zhao launched the exchange platform in 2017. The platform is geared primarily toward dealing in alternative cryptocurrencies. More than 600 different coins can be traded on the platform, including Bitcoin, Ethereum, Litecoin, Dogecoin, and Binance Coin (BNB). It remains one of the most popular exchanges for digital currencies due to its low transaction fees, especially for crypto-to-crypto trading. Those who choose to use the native BNB cryptocurrency tokens to make purchases are eligible for discounts. They also get to enjoy the platform's high liquidity. Binance's high processing throughput comes from its safe and secure multi-tiered and multi-cluster design. This allows it to handle approximately 1.4 million orders per second.

    Timeline of the Crash of FTX

    Here is what went on between Sam Bankman-Fried and Changpeng Zhao before the fall of FTX:

    The Growing Concerns of FTT’s Fall

  • On November 6, Changpeng Zhao made a tweet about selling out Binance’s stockpile of FTT. According to him, this was due to “recent findings that have come to light.” This was shortly after November 2 CoinDesk piece on FTX and Alameda’s muddled money.

  • He compared the current state of FTX with the TerraUSD and LUNA crashes of this year. Furthermore, he noted that FTX’s current state is having a similar effect on the cryptocurrency industry and has lost investors billions of dollars. However, such changes in the market are rarely made public.

  • FTT's value plummeted the following day due to growing concerns that FTX had the resources to support itself and remain operational. Bitcoin's value hit a two-year low, while that of other currencies such as Ethereum also fell. On Thursday, Bankman-Fried tweeted that $5 billion had been withdrawn from the platform on November 6.

Agreement and Dispute Between Zhao and Bankman-Fried

  • Afterwards, Binance's acquisition of FTX's operations outside of the United States was arranged by Zhao and Bankman-Fried. On November 8th, CEOs of the exchanges signed a nonbinding statement of intent. They agreed to bail out the failing exchange so that a wider market meltdown wouldn't occur.

  • However, Binance suddenly backed out. Within 24 hours, Zhao announced on Twitter that Binance will not be acquiring FTX after completing its "corporate due diligence." Reports of "mishandled client cash" and "supposed U.S. government probes," as Zhao put it in a tweet, influenced his decision. A mysterious tweet from Bankman-Fried that appeared to relate to Zhao and his role in FTX's decline read: "Well played; you won."

  • All non-fiat customer withdrawals were suspended by FTX on November 8th. Bankman-Fried took to Twitter to apologize for FTX's liquidity problems and explain the exchange's lack of communication.

  • On November 10, FTX.US sent a warning to its customers on the login page. It read that trading "may be suspended on FTX US in the next few days," but that withdrawals would still be possible.

  • On Friday, November 11th, FTX made public its decision to voluntarily enter Chapter 11 bankruptcy protection. This protection was to guarantee itself, FTX.US, and Alameda. Instead of having their assets liquidated in Chapter 7 bankruptcy, businesses can reorganize their debts under Chapter 11 and keep running.

  • However, despite prior promises that FTX.US was unaffected by FTX's liquidity issues, FTX.US briefly blocked withdrawals on Friday. This was shortly after the bankruptcy declaration. Eventually, withdrawals were made available again.

The Eventual Fall of FTX

  • An alleged breach occurred on Friday night, draining FTX and FTX.US wallets. According to CoinDesk, about $600 million was stolen from the accounts. Telegram, an instant messaging service, was used as a support channel for FTX following the attack.

  • The channel rendered the following message: "FTX has been hacked. FTX applications are malware. Delete them. Chat is open.” It further read: - “Don't go on FTX site as it could download Trojans."

  • According to one Twitter user, cybercriminals have also been targeting FTX.US bank accounts. Around this time, Plaid, a firm that links consumer bank accounts with financial apps, cut off FTX's access to their goods. The company took this action despite the fact that they had found no evidence that their tools had been used illegally.

  • It was claimed that Plaid had done so after hearing "concerning public reports.”

  • General Counsel Ryne Miller of FTX made a tweet the same evening of the heavy strike. He mentioned that the business will hasten the transfer of remaining assets to cold storage (offline) due to the "unauthorized transactions.”

  • The Financial Times revealed FTX's balance statement on the 10th of November, 2022. It detailed $9 billion in liabilities and just $900 million in liquid assets. There was a jumble of entries, including one for a "secret, badly internally named 'fiat@' account," with a negative $8 billion balance.

    The Aftermath of the FTX Crisis

  • Criminal proceedings have been opened against FTX in its home country of the Bahamas. According to CoinDesk, Bankman-Fried shared the home with nine business associates and on-and-off love partners. Former FTX workers claimed that only this select group had access to the true details of the firm's complex financial situation.

  • Finally, the hacker who stole over $600 million from FTX began transferring the assets on the blockchain from various addresses. At first, he sent some to the stablecoin DAI and subsequently to Ethereum (ETH). According to data compiled by CoinDesk, the user is currently the 35th largest holder of ETH globally.

    The Effect of the Crisis on FTX US Customers

    According to the FTX announcement, FTX.US is part of the company's Chapter 11 bankruptcy case. In a statement, Ray, the company's new CEO, stated their goal is to "maximize recovery for stakeholders." However, there isn’t much to show for this statement yet.

Some customers have stated that their wallets had been emptied as of Friday night. This was shortly after the purported $600 million breach. Consumer withdrawals were momentarily halted earlier that day on FTX.US but have since been reinstated. The FTX user login page is down at the moment.

The Effect of the Crisis on the US Crypto Market

The problems at FTX have had a significant impact on the American cryptocurrency market. On both November 9 and 14, Bitcoin's price fell below $15,000. In the past week, $3.2 billion worth of bitcoin has been removed from exchanges. On November 9th, the price of Ethereum fell below $1,100. On November 9th, after CoinDesk reported that Alameda had a significant quantity of Solana, the price dropped below $13. In the previous week, Solana applications lost almost $700 million in total assets. Also, on November 13, the stock price dropped below $13 once again. Furthermore, on November 10, Tether saw a temporary 3% depeg from the US dollar.

Conclusion

It's important to remember that cryptocurrency is a high-risk asset class. A small percentage of your portfolio can be allocated to high-risk investments. By purchasing multiple different cryptocurrencies, you can spread out your exposure and lower your overall risk. As of now, the future of FTX is totally uncertain.



Storing your cryptocurrencies in online wallets, exchanges and software wallets exposes you to risks of being hacked. Consider storing them in a hardware wallet today



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