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Early last November, an epic battle took place between Binance, the world’s leading cryptocurrency exchange, and FTX, its challenger, through their respective leaders. FTX has in fact recently gone into very bad shape and Binance has issued an acquisition proposal. The consequences were not long in coming, with the main cryptocurrencies suffering a severe blow in the following two days. Bitcoin, the giant of the cryptosphere, has fallen by more than 10% in one day, other currencies have suffered even more, such as Solana which has lost more than 30% or precisely FTX which has fallen by more than 70%.
What were the reasons for this apocalyptic situation? How could it have such an impact on the market? What to expect next?
FTT LOOKING FOR ALAMEDA: THE BEGINNING OF THE NIGHTMARE
On Nov. 2, CoinDesk media revealed a close link between FTX and Alamada Research, the two companies of Sam Bankman-Fried (known as SBF). In fact, according to a financial document that CoinDesk has reportedly seen, Alamada Research’s assets as of June 30 of this year totaled $3.66 billion in “unlocked FTT,” out of a total of $14.6 billion. . Liabilities would show $292 million of FTT, out of a total of $8 billion. The problem is that “FTT” is the exchange token issued by the FTX company, suggesting that the SBF empire may have liquidity problems and insolvency.
Four days later, the CEO of Alameda Research, Caroline Ellison, spoke about the situation, specifying that this report concerns “only a subset of [nos] legal entities”.
INTERVENTION OF CZ ON TWITTER AND FALL OF FTT
Changpeng Zhao (known as CZ), CEO of Binance, announced on November 7, in reaction to these revelations, that he had made the decision to sell his US$2.1 billion stake in FTX (including stablecoins FTT and BUSD), considered particularly at risk. This announcement, made publicly on Twitter, was felt directly, causing the price of FTX’s native cryptocurrency to drop by 30% overnight.
According to Bloomberg, FTX’s stablecoin reserves fell to $114 million on the same day from $394 million three days earlier.
Additional tweets were then posted to both CEOs’ accounts, discussing FTX’s creditworthiness. SBF claimed in these tweets that they had no problem processing withdrawals and that the funds were safe.
FTX INSOLVENCY AND CONSEQUENCES
Despite SBF’s attempted calm, investors weren’t convinced. The next day, Tuesday November 8, the FTT continued to decline as withdrawals piled up on the FTX platform. The more time passed, the less withdrawals were processed. At the same time, the price of FTT has continued to fall. These events have confirmed investors’ fears, and the hope of one day seeing their own funds has become increasingly dim for users.
FTX then spoke on twitter, the platform announced that it had filed for Chapter 11 bankruptcy proceedings in the United States. The number 2 exchange in the world has gone under the American bankruptcy regime. The group then claimed more than 100,000 creditors with debts estimated at between $10 and $50 billion.
The bankruptcy affects FTX.com and FTX.us while FTX’s Bahamian subsidiary is not included in the restructuring plan. Also, on Friday, November 11, platform CEO Sam Bankman-Fried officially announced his resignation. John J. Ray III has been named interim chief executive officer until this story is resolved.
Many users have therefore lost their entire wallet, withdrawals are blocked for them, both in the United States and in the European zone. In fact, since last Friday, it seems that no more withdrawals from the platform have been finalized. This decision would definitely come from the new management of FTX.
The members, for their part, flee so as not to tarnish their image with that of the exchange: Visa announces that it is terminating the partnership concerning the crypto-card; Mercedes, which had inked a deal to promote FTX on its F1 cars, announced it was suspending the deal and continued to closely monitor the situation. On the basketball side, the Miami Heat team also terminated the contract, also abandoning the name “FTX Arena” for their stadium.
DESCENT INTO HELL
FTX’s descent into hell continues even after the announcement of its bankruptcy for the exchange platform. This in effect reports being hacked and being robbed of several hundred million dollars. Some media mention more than 600 million. The platform then came forward stating that its security had been compromised and advising not to log into the app or website.
For its part, Tether managed to blacklist $31.4 million related to FTX hacks (in the form of USDT), preventing hackers from using them. Other news has come to aggravate the fate of the former CEO of FTX: he would have in fact transferred 10 billion dollars from users’ funds without their knowledge to Alameda Research, and investigations show that between 1 and 2 billion he would have withdrawn (in a figure unknown) way) and therefore not even invested, making the situation even more critical.
On the other hand, employees of the failed exchange and those of Alameda Research would have been strongly influenced to deposit their capital on FTX, amidst false promises and lies, leaving them in the same place as other users. Additionally, The Block reported that FTX has initiated over 10 real estate acquisitions in the Bahamas for $74 million.
SBF’s fate is not yet known, but the latest news is that he is in the Bahamas, where he is being questioned by police, and investigators from the Financial Crimes Unit have arrived to help investigate possible criminal actions. The Alameda Research chief executive would try to join Dubai, which does not have an extradition deal with the United States.
This series of events marking the downfall of the world’s second largest cryptocurrency exchange is of course not without consequences.
In the wake of the FTT token, the entire cryptosphere has been impacted. Whether it is the liquidation of billions of assets on the platform, the withdrawal of investors during these events or even the confidence in these assets that has dropped to a low, the cryptocurrency market has taken a huge hit, losing more than 25% of its weight, or more than 250 billion dollars lost.
The consequences will certainly also be felt in the long run: the trust of investors, institutions and, more generally, the general public has been greatly affected and risks being extremely difficult to regain.
Indeed, the image of the “crypto” universe has taken some time to build itself in the right direction, it still remains highly controversial, especially among the older generations. Considered by many to be dangerous, unfathomable and particularly abstract, the crypto-sphere will have a hard time restoring its image after these latest incidents.
But that is not all. From this effect another one derives, which concerns the market, its functioning and the basic concept of the cryptocurrency: the regulations.
The idea behind these currencies was precisely an idea of total transparency: to be accessible to all, for all, by all, and not directed or controlled by different regulations and institutions. It is from this philosophy and this idea that all the innovations related to this ecosystem have come.
It is also very clear that the world of finance does not like this “ideology”, which for years has been trying to undermine and control this crypto-sphere like “traditional” investments under the pretext of “security”. . An event like the FTX bust is a boon for these institutions: it opens the door to regulations and new laws to “protect investors” and thus maintain control of the market. This goes against all the principles and foundations of the blockchain, and risks disappointing many investors who really believe in this technology, as well as completely preventing the realization of what cryptocurrencies were really created for in origin.
Finally, beyond the economic consequences, it is investors who have been affected. Huge numbers of people were affected by this disaster, many losing all their savings, effectively suffering a devastating psychological and moral impact. Confidence in the various exchanges has weakened and the sad and famous saying “not your key, not your money” is once again taking its toll.
Directed by Mathis Erba, Charles Dhennin with the help of Marc Dagher
Article originally published on DT Expert