The Bahamas-based FTX cryptocurrency exchange provides cryptocurrency trading services. Founded in 2019, it had over one million users at its peak in 2021 and ranked third in terms of volume among crypto exchanges. After a liquidity crisis, FTX filed for bankruptcy in the US court system on 11 November 2022.
What Happened to FTX?
It was expected that Binance, the world’s largest cryptocurrency exchange, would bail out FTX. After that, it walked away from the deal.
In May, several collapsing firms received financial lifelines from the crypto company FTX during the $2 trillion crypto market crash.
Binance, FTX’s rival, seemed poised to deliver a bailout this week. Then Binance reversed its decision, saying it would not acquire the company.
What are FTX and Binance?
Binance and FTX are cryptocurrency exchanges that allow users to exchange digital currencies for traditional money or other digital currencies. CoinMarketCap, an industry data tracker, reports that these two exchanges process the majority of crypto trades worldwide.
A world-renowned exchange, FTX, is headquartered in the Bahamas and run by Sam Bankman-Fried. A number of millions of dollars have been spent lobbying American legislators to implement crypto-friendly regulations.
Why did FTX run into trouble?
For transactions like paying transaction fees, traders use FTX’s native cryptocurrency token, FTT. FTT tokens were used in part to purchase Mr. Zhao’s stake in FTX last year.
Earlier this month, CoinDesk reported on a leaked document that appeared to show that Mr. Bankman-Fried’s hedge fund Alameda Research held an unusually large amount of FTT tokens. According to the report, FTX and Alameda have close financial ties despite being separate companies.
In response to the recent revelations, Binance announced on Nov. 6 that it would sell its FTT tokens. As a result, FTT’s price plummeted and traders fled from FTX, fearing another crypto failure.
Over the course of three days, FTX scrambled to process withdrawal requests totaling $6 billion. The company was facing a liquidity crunch, which meant it did not have the money to fulfill requests.
FTX Declares Bankruptcy
Due to shocking revelations about poorly managed crypto projects, crypto investors have experienced more than their fair share of sudden market meltdowns this year.
In early November, FTX-the fourth-largest crypto exchange in the world-became the latest victim of seismic disruption.
According to a company statement posted on Twitter on Nov. 11, FTX, its sister firm Alameda Research, and 130 affiliated companies filed for bankruptcy. In the statement, it was also announced that Sam Bankman-Fried, CEO of FTX, was stepping down from his role and would be replaced by John J. Ray III. However, Bankman-Fried would help with the transition.
In Ray’s words, the immediate relief of Chapter 11 will allow the FTX Group to assess its situation and develop a process for maximizing recoveries for stakeholders.
Customers of bankrupt FTX may never get their crypto back, experts say
According to experts, many customers of the bankrupt cryptocurrency exchange FTX Trading may never receive their funds back.
Creditors of FTX will receive first priority when a bankruptcy judge decides what assets should be distributed as part of FTX’s Chapter 11 filing. The Bahamas-based company raised some $2 billion in venture capital, so investors will be second in line. CBS MoneyWatch reported that FTX account holders who used the platform to trade bitcoin, solana and other digital currencies are at the back of the queue.
Anthony Sabino, a law professor at St. John’s University, expects that those customers will recoup only a portion of their original deposit. FTX’s bankruptcy process will probably diminish the value of assets customers have on the platform now, he said.
“People are going to be waiting on the sidelines for a very long time, and only heaven knows what it’s going to be worth,” said Sabino, an expert on securities regulation. “It does not look good at all.”
FTX Customers Face a Long Road to Try to Get Their Money Back
This week, the exchange halted customer withdrawals at its international unit; ‘If exchanges can’t be trusted, the whole concept of cryptocurrency doesn’t work.’
FTX’s problems spooked Stephen Gibbs this week, so he decided to withdraw his funds from the exchange.
Gibbs, a musician in Thailand, attempted to withdraw his money Tuesday. The international unit of FTX halted withdrawals both in crypto and in fiat that day.