How FTX crashed and how FTX went from the 3rd largest cryptocurrency to bankruptcy in 2022?
In this video, "Aneeq Dholakia," co-founder of Edyst, talks about FTX crash. He discusses how the FTX crash and the story behind it.
FTX - The Beginning Chapter
FTX is a cryptocurrency derivatives exchange founded in 2019 by Sam Bankman-Fried, a former trader at Jane Street and Susquehanna International Group. The exchange was created with the goal of providing institutional-grade trading tools to the cryptocurrency market. FTX initially focused on offering futures contracts and other derivatives products, but has since expanded to include spot trading and other services. The company is headquartered in Singapore and has offices in San Francisco, Hong Kong, and New York.
FTX - The Growth Chapter
FTX has experienced significant growth since its launch in 2019. The exchange has become popular among professional traders and has attracted a large number of users from around the world. In 2020, FTX was ranked as the third-largest cryptocurrency derivatives exchange by trading volume, according to CoinMarketCap.
Overall, it can be said that FTX has been successful in establishing itself as a leading player in the cryptocurrency derivatives market.
FTX- The Bankruptcy Chapter
FTX well-known cryptocurrency exchange, and its US branch, FTX.US, have filed for Chapter 11 bankruptcy on Nov. 11 2022 bankruptcy, causing ripple effects throughout the crypto market as cryptocurrencies and exchanges with ties to FTX face financial difficulties. The former CEO, Sam Bankman-Fried, was arrested in the Bahamas on charges of wire fraud and conspiracy to defraud investors, and is now facing extradition to the US. The new CEO, John J. Ray III, previously led Enron through its bankruptcy and liquidation process. According to the bankruptcy filing, there was a "complete failure of corporate controls" and a "complete absence of trustworthy financial information" at FTX. Don't miss out on the exciting updates on this developing story.
Post FTX - Bankruptcy
As the largest collapse in the short history of cryptocurrencies, the FTX made the future uncertain, an exchange got tough and withdrawals were disabled. The ripple effects of this disaster will be felt throughout the industry, as investors may become even more cautious due to concerns about stability and security. Customers on the FTX platform may potentially lead to legal action. The collapse of FTX prompted regulatory agencies like the SEC to increase their scrutiny of cryptocurrencies and Congress to consider creating new laws governing digital tokens and exchanges. The impact of this collapse will be far-reaching, as other exchanges like BlockFi, Crypto.com, and Genesis Global Capital also got influenced.
Events which took place while FTX collapse
The downfall of cryptocurrency exchange FTX has been closely tied to its former CEO, Sam Bankman-Fried, who was arrested and jailed in the Bahamas on Dec. 12 on charges of fraudulent activity related to his time at the helm of the company.
Multiple investigations and lawsuits against Bankman-Fried and FTX are ongoing.
The company's collapse in November 2022 was preceded by concerns about its leverage and solvency, as reported by CoinDesk, and it faced a liquidity crisis and a search for bailout funds.
Rival exchange Binance considered purchasing parts of FTX, but ultimately backed out.
The CEO resigned and the company filed for bankruptcy on Nov. 11, and in the following hours, it experienced a possible hack in which hundreds of millions worth of tokens were stolen.
Lessons every investor can learn from the recent FTX crash
#1 Protect your cryptocurrency and keep it safe from hacks by using a cold wallet!
While it's important to choose the right exchange from the start, the recent FTX collapse has highlighted the importance of keeping your crypto offline and stored in a "cold" wallet. Unlike "hot" wallets that are accessed through internet-connected devices and vulnerable to hacks, cold wallets store your private key on an offline device, making it much harder for anyone to compromise your assets. Yes, it may be less liquid and harder to trade quickly, but the added security is worth it.
#2 Regulation and classification of cryptocurrency needed for greater protection of investors
The collapse of FTX has sparked a renewed conversation about the regulation and classification of cryptocurrency, and it's clear that investors need greater protection. That's where regulation comes in – governments around the world are increasing transparency in the market to better safeguard client assets and reduce risk. As a result, we can expect to see crypto entities disclosing more information about their balance sheets, limiting asset concentration, and practicing more diligent risk management, including managing counterparty risk. Don't let the FTX collapse be a cautionary tale – make sure you're informed and protected as a crypto investor.
#3 Don't invest too much
Don't take on more risk than you can handle – remember to only invest what you can afford to lose. And definitely don't borrow money to invest, known as leveraging – it's a risky strategy that can backfire, especially when central bankers are tightening monetary policies and money becomes more expensive. In the case of FTX, the exchange created its own cryptocurrency, FTT, and used it as collateral to raise loans, which turned out to be a dangerous move when the value of the collateral plummeted. To protect yourself from similar leverage-induced losses at an exchange, make sure to thoroughly check the security, liquidity, fees, history, and user experience before making any investments. Don't take any unnecessary chances with your money – be smart and be safe.