Until recently, FTX Trading was a toast to the cryptocurrency world.
In 2021, the company’s revenues increased by more than 1,000% to $ 1 billion as it harnessed public interest in the potential of digital currencies to build wealth. FTX also made a trumpet about its brand with eye-catching Super Bowl commercials featuring quarterback Tom Brady and comedian Larry David. Highlighting the meteoric rise in the corporate world, the company bought the rights to the name American Airlines Arena in Florida for $ 135 million and renamed it FTX Arena.
A year later, FTX is now on the brink of bankruptcy, grappling with billions of dollars in losses and a federal investigation. The company’s rapid growth and sudden decline – along with the fate of its respected founder and CEO, Sam Bankman-Fried – are reminiscent of the dizzying volatility of the cryptocurrency itself.
The deal broke
The rapid change of fate of FTX shocked the cryptocurrency world. On Tuesday, CEO of the rival crypto exchange Binance, Changpeng Zhao, said his company had struck a deal for. But he raising questions about the profitability of FTX.
In a subsequent interview with investors, Bankman-Fried said FTX needs about $ 8 billion to back up the crypto assets that users have on the platform, Bloomberg News reported. He also said that without an imminent cash injection, the company could be forced into bankruptcy, according to Bloomberg.
FTX did not immediately respond to a request for comment. Fried by a banker tweeted On Thursday, FTX “spends a week doing everything we can to increase liquidity.”
“Every penny of this – and the existing security – will go straight to users unless we get it right through them,” he tweeted.
The bankruptcy of the world’s third-largest crypto exchange would shake up an industry that has long attracted unwanted attention from financial regulators and lawmakers, CBS MoneyWatch experts said.
“It will be a psychological shock to the industry to say that customer assets worth $ 8 billion have disappeared,” said Josh Peck, a cryptocurrency risk expert. “It’s a big deal. People will be wary. [and] they will say bitcoin is over.
Following the FTX woes, the U.S. Securities and Exchange Commission is now investigating possible violations, Associated Press reported. Regulators are trying to determine whether employees from FTX’s sales department, Alameda Research, used customer funds to place risky bets in the market.
A deluge of payouts
FTX’s liquidity problems began a few months ago when Bankman-Fried said it used incorrect data to compile the company’s financial forecasts.
In a series of apologetic tweets, the CEO said he had mistakenly believed that the company had enough cash on hand to pay 24 times the amount users normally pay out in a single day; in fact, FTX has enough cash to pay 0.8 times the amount – a dangerously risky pillow for cryptocurrency exchanges. The miscalculation has returned to haunt FTX last weekend in a deluge of user withdrawals.
“Because of course it pours when it rains,” Bankman-Fried tweeted. “We saw about $ 5 billion in payouts on Sunday – the largest with a huge margin.”
Main Cryptocurrency Sale Thathe is also partly to blame for what is happening now at FTX. Popular tokens such as bitcoin, ether and ripple have depreciated in recent months, .
In response to the crypto crisis, FTX loaned $ 500 million to Voyager Digital in June, hoping to help the cryptocurrency lending platform survive the longer-than-expected crisis, CNBC reported. The move turned out to be costly for FTX as Digital Voyager filed for bankruptcy a month later, and FTX later paid $ 51 million to buy out Voyager.
FTX took another financial hit when Binance offloaded its remaining FTX tokens, called FTTs, which it received as part of the $ 2.1 billion exit from FTX last year.
“Due to the recent revelations that came to light, we decided to eliminate any remaining FTTs in our books, “Zhao wrote on Twitter on Sunday.
Bankman-Fried made no mention of the bankruptcy in his tweets, but promised to do well for users. However, FTX suspended payouts on Thursday, which Peck said hurts customers even if the company doesn’t go bankrupt.
Despite the likely shocks to the industry, should FTX collapse, the cryptocurrency sector has about a dozen other “high-quality” exchanges to absorb demand, Peck said. Most cryptocurrencies are unlikely to change in value either – except for one, he said.
Alameda Research owns a large amount of saline, and a bankruptcy would likely freeze these coins for an unknown amount of time.
“It will still be a tragic circumstance as FTX customers will lose a lot of money,” said Peck. “But eventually the industry will adapt to it.”
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