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What is FTX and Why did it Crash?

You may have already seen several headlines just this week about the company FTX filing for chapter 11 bankruptcy. In addition to this, the CEO, Sam Bankman-Fried also resigned from the company, further solidifying its downfall. His $16 billion fortune was completely lost, marking one of the largest losses of wealth in recent years. But how did we get here? How did such a large company lose everything seemingly overnight? In this article, we will look at just how this whole situation came about.

What is FTX?

Before we dive into why the company has gone bankrupt, we should look into what FTX was as a business. If you weren’t aware already, FTX was the third-largest cryptocurrency exchange in the world. The company allowed users to exchange and liquidate different cryptocurrencies. Because cryptocurrency is a digital currency, such services are important for investors. As long as they have a desire to trade and purchase different coins, exchange services like FTX will be necessary. While it’s possible to invest without using exchange services, they make the process much safer and more reliable.

So, what happened with FTX?

The bankruptcy of FTX has to do with a few factors. One of these factors is the fall of cryptocurrency as a whole. In the past year, cryptocurrency has been on a steep decline from the peak it was able to reach last year. FTT, which is FTX’s linked crypto coin was also on such a collapse. This was after the then CEO, Sam Bankman-Fried was reportedly using the coin users invested in to take out loans for FTX and its sister company Alameda. After FTT crashed, both companies which were linked to it suffered greatly.

As a result of their situation, Bankman-Fried began talks with FTX’s competitor, Binance to discuss purchasing the company. This was after Binance announced they would be selling all of their FTT, which was valued around $500 million. Binance’s announcement caused investors to follow suit, and rush to sell their investments as well. It should be no surprise to say that Binance no longer had interest in purchasing the company after all of this played out. After publicly stating that the issues FTX was dealing with were “beyond our control or ability to help,” Binance, which was the company’s last hope left, FTX with no choice but to declare bankruptcy.

What were some of the allegations against FTX?

As briefly mentioned earlier, one serious allegation against FTX was that they had reportedly used investor’s funds to loan money to their sister company Alameda. At the time, FTX had about $16 billion in customer assets and loaned $10 billion to Alameda. The legality of this whole situation is questionable, but one thing for certain is that this shady business is part of the reason for FTX’s downfall.

What does this mean for the future of cryptocurrency?

Cryptocurrency as a whole hasn’t been doing so great lately. Even though it started out as a trusted brand, this recent collapse of FTX might not come as too much of a surprise for those who have followed how things have been going in the world of crypto. It seems like investors just can’t catch a break, and it is unknown how things will go from here on out.

It is unlikely that cryptocurrency as a whole will be greatly affected by FTX’s bankruptcy, but it will at the very least cause investors to be more cautious about how they will proceed in the future. There are already many who have opted to panic and withdraw what they can, but most have decided to play the long game and wait to see how things turn out. One thing for certain is that time is what will tell us what exactly lies in store for digital currency.

Sources: https://en.as.com/latest_news/ftx-cryptocurrency-exchange-files-for-bankruptcy-what-is-ftx-and-what-happened-n/

https://www.wsj.com/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732?st=wawn6imqxkhz3z8

Anthony Martin

Anthony Martin is currently a college student at the University of Central Florida. He is majoring in Digital Media and has a background in computer programming. Anthony has studied many different computer programming languages and uses his familiarity with HTML/CSS to assist him in writing articles for and maintaining the website.

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