FTX was found by Sam Bankman-Fried in 2019 with Bahamas Headquarters. The Exchange’s market capitalisation rose to $32 billion. Crypto exchange companies earn their income on transaction fees and keep client funds separate from company funds meaning they cannot invest client funds elsewhere.
However, Bankman-Fried transferred client funds amounting to $10 billion to Alameda Research, his trade-in firm which pursued risky investments. When this connection was revealed by an article expressing unstable financial situation of Alameda Research, clients started asking for their money from FTX and this fuelled panic. Binance, the largest cryptocurrency exchange, announced that it would buy the non-US business of FTX, but backed down the next day. Assets of FTX was frozen and an investigation was initiated in the
US followed by FTX filing for bankruptcy on November 11th .
The collapse of FTX has added to the market concerns about the financial stability of cryptocurrency exchanges. Clients of FTX are already engaging in legal action to recover their
assets. Even celebrities like Naomi Osaka are facing litigation for taking part in FTX ads. USSEC and other regulators will tighten related regulations and special laws will be considered to prevent such problems in the future.
(1) Royal, James and Baker, Brian. “12 most popular types of cryptocurrency”. Bankrate.com, November 14th , 2022.
(2) Daily Tech News Podcast, November 11th , 2022.
(3) Reiff, Nathan. “The Collapse of FTX: What went wrong with the crypto exchange?” – Investopedia.com, November 16th , 2022.
By Sude Capoglu, BeComAware Student Ambassador.
All BeComAware content is reviewed and approved by industry professionals.