Explainer: What is going on with the failed cryptocurrency exchange FTX?

Explainer: What is going on with the failed cryptocurrency exchange FTX?

Collapsed cryptocurrency exchange FTX is now short on billions of dollars after encountering the crypto-equivalent of a bank run.

Collapsed cryptocurrency exchange FTX is now short on billions of dollars after encountering the crypto-equivalent of a bank run.

The exchange, once one of the world’s largest, sought bankruptcy protection last week, and its chief executive and founder resigned.

Hours later, the trading company said there had been “unauthorized access” and that the funds had disappeared. Analysts say hundreds of millions of dollars may be gone.

The breakup of the giant stock exchange is sending shock waves through the industry. Here’s a look at the company’s collapse so far:


Clients fled the exchange over concerns about whether FTX had enough capital, and agreed to sell themselves to rival crypto exchange Binance. But the deal failed while Binance’s due diligence on FTX’s balance sheet was still pending.

FTX has estimated its assets between $10 billion to $50 billion, and has listed more than 130 subsidiaries around the world, according to its bankruptcy filing.

FTX and dozens of subsidiaries — including founding hedge fund Sam Bankman-Fried’s Alameda Research — filed for bankruptcy in Delaware on Friday.

This week’s developments marked a shocking turn of events for Bankman-Fried, who was hailed as a somewhat savior earlier this year when he helped prop up a number of crypto firms facing financial troubles.

He was recently valued at US$23 billion and was a prominent political donor to the Democrats.

Was it also hacked?

FTX confirmed Saturday that there was unauthorized access to its accounts, hours after the company filed for Chapter 11 bankruptcy protection.

A discussion has arisen on social media about whether the exchange was hacked or a company insider stole the funds — a possibility that crypto analysts cannot rule out.

It’s unclear exactly how much money is involved, but analytics firm Elliptic estimated on Saturday that $477 million is missing from the exchange.

John Ray III, the new CEO of FTX, said it is halting the ability to trade or withdraw funds and is taking steps to secure client assets.

Is my bitcoin safe?

Cory Klebstein, CEO of financial services firm Swan Bitcoin, said that people who own bitcoin should be fine if they keep them away from exchanges like FTX that effectively serve as “a gambling website for crypto casinos.”

“Any exchange is a security risk,” Klippsten said, with some more reputable than others, but he said the best option is to take control of your digital assets.

“With bitcoin, you have the option of taking the self-guard and withdrawing your coins from the exchange,” he said.

Is FTX under investigation?

The Royal Bahamas Police said on Sunday they are investigating FTX, adding to the company’s problems. The police force said in a statement on Sunday that it was working with securities regulators in the Bahamas to “investigate whether any criminal misconduct occurred” in connection with the exchange, which moved its headquarters to the Caribbean nation last year.

Is anyone else investigating?

Even before filing for bankruptcy and losing money, the US Department of Justice and the Securities and Exchange Commission began examining the FTX to determine whether any criminal activity or securities-related offenses have been committed, according to a person familiar with the matter who spoke to The Associated Press last week on condition They remain anonymous because they have not been able to publicly discuss the details of the investigations.

What are the implications?

The companies that backed FTX are writing down the investments, and the price of bitcoin and other digital currencies has plummeted.

Politicians and regulators are calling for stricter supervision of impractical industry. On Saturday, FTX said it was moving as many identifiable digital assets as possible to its new “cold custodian,” which is essentially a way to store assets offline without allowing remote control.

FTX has entered into a number of sports-related deals, some of which are falling apart. The Miami Heat and Miami-Dade County teams decided Friday to end their relationship with FTX, and will rename the team’s arena.

Earlier on Friday, Mercedes said it would immediately remove the FTX logos from its Formula 1 cars.

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