FTX Bankruptcy and Fallout

If you’ve been following cryptocurrency closely, then you were probably familiar with FTX before its demise this fall. But even those without a digital wallet have now heard of the infamous crypto exchange and its founder and former CEO, Sam Bankman-Fried (SBF).

On November 11, the company—which was the fourth-largest crypto exchange at the time—filed for Chapter 11 Bankruptcy. That same day, a hack drained more than $600 million from user wallets.

But FTX isn’t the only crypto company in trouble. The bankruptcy has had a domino effect across the crypto-verse.

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Here’s how the FTX debacle has shaken out (so far).

What Happened?

FTX went bankrupt after mismanaging funds. The company lacked liquidity and scared off investors.

John J. Ray took over as CEO after SBF resigned. In a November 17 bankruptcy filing, Ray put it this way, "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” He continued, saying:

“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented."

However, the catapult into bankruptcy began on November 2nd, when CoinDesk leaked the financials of Alameda Research, a crypto trading firm owned by Sam Bankman-Fried and a “sister company” of FTX. The report revealed that most of Alameda’s assets were in the FTX token FTT.

After this revelation, the CEO of Binance, another major exchange, tweeted on Nov. 6 that it would liquidate all its shares of FTT. This sparked volatility in the price of FTT and the beginning of the end for FTX. Two days later, Binance announced that it would buy out FTX, only to reverse the decision the following day after it came out that US federal agencies were investigating FTX.

Two days later, FTX and its subsidiaries filed for bankruptcy.

What Now?

Of course, no company is an island. And in the case of FTX, the coins and companies affected by its downfall are many. The first to fall was FTX’s native token, FTT. With it, other coins crashed, including Ethereum and Bitcoin, which have yet to recover. n November 28, BlockFi, another major exchange, filed for bankruptcy. The company had a $275 million loan to FTX US on its balance sheet.

The effects of the fall are still lingering. FTX stated that its top 50 creditors are owed a total of $3.1 billion — a sum that will likely go unpaid and undoubtedly trigger more trouble for those creditors. Additionally, many investors who had assets stored on FTX still aren’t able to withdraw their funds from the platform.

Bankruptcy hearings began in late November. And the US House Financial Services and Senate Banking committees have said they will hold hearings into the implosion of FTX in December. The downfall of FTX has shined an even brighter spotlight on the crypto industry, which will likely lead government agencies to push for greater regulation to protect consumers.