On Friday, cryptocurrency exchange FTX Trading Ltd. and 134 affiliated firms filed for bankruptcy protection, and CEO Sam Bankman-Fried resigned as CEO, turning over control to John Ray III, who also oversaw the liquidation of Enron Corp.
The collapse of FTX, which according to optimistic math was worth $32 billion in January, has sent shockwaves across the cryptocurrency industry.
Over the weekend, trading platform BlockFi suspended withdrawals, citing “the lack of clarity on the status of FTX.com, FTX US and [Bankman-Fried’s cryptocurrency hedge fund] Alameda.”
AAX, another cryptocurrency exchange, said “withdrawals have been suspended to avoid fraud and exploitation” – the firm said it had scheduled an update to its systems to protect against fraud and malicious attacks, which had been observed in the wake of the FTX debacle.
Also, the Hong Kong crypto platform Hbit Limited, a subsidiary of New Huo Technology, said it has been unable to withdraw $18 million in cryptocurrency funds from FTX, of which $13.2 million represented customer assets [PDF].
According to Reuters, FTX secretly transferred, or loaned, as much as $10 billion in customer funds to Alameda Research and that something like $1 or $2 billion of the funds had gone missing.
Bankman-Fried, evidently in the Bahamas, disputed Reuter’s characterization that the funds were secretly transferred but did not offer an alternate explanation or account for the allegedly missing funds.
The link between FTX and Alameda Research came to light on November 2nd when Coindesk reported that Alameda held a large amount of FTT tokens, suggesting that the two Bankman-Fried-run companies were not operated as separately as had been claimed.
Changpeng Zhao, CEO of rival Binance, said on November 6 that it planned to sell its FTT tokens, alluding to that report. That sent the price of FTT tokens down and other holders of these tokens accelerated the decline by trying to sell their stakes too. Unable to cover the attempted withdrawal of an estimated $6 billion, FTX became illiquid – it didn’t have enough cash on hand to fulfill customer withdrawal requests.
After the crisis, Binance said it would buy FTX, only to back out, citing “corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations.”
FTX is reportedly being investigated by the US Securities and Exchange Commission and the Justice Department. The SEC is also said to be looking into Coinbase Global and Binance.
The FTT token, priced around $26 at the beginning of the month, can now be had for about $1.38. The FTX Trading Ltd. bankruptcy filing [PDF] lists between assets of between $10 billion and $50 billion in assets and the same range of liabilities. Over the past 12 months, cryptocurrency market capitalization has declined by about $2 trillion.
Meanwhile, Bankman-Fried, known on Twitter as SBF, has been coyly tweeting out the message “WHAT HAPPENE…” in a series of one character posts. We’re expecting the “D” to drop any minute now.
Hagiographically profiled in a now removed post on the website of investment firm Sequoia, Bankman-Fried is described by author Adam Fisher in terms that, in retrospect, seem outlandishly obsequious and uncritical – even for a firm that put $213 million into FTX. The piece, titled “Sam Bankman-Fried Has a Savior Complex – And Maybe You Should Too,” did manage, however, to be inadvertently accurate about SBF’s capacity for trimming his own net worth.
“It’s hard to see SBF in a clear light,” Fisher wrote. “The glitter of the self-made billions are blinding. His intellect is as awesome as it is intimidating. But, once I’d hacked past the piles of money and the IQ points to spare, I found something unexpected: impoverishment. …” ®