{"id":1404,"date":"2022-11-16T19:11:00","date_gmt":"2022-11-16T18:11:00","guid":{"rendered":"https:\/\/www.lexcapital.it\/ftx-collapse-a-tornado-in-the-cryptocurrency-world\/"},"modified":"2024-05-06T13:57:53","modified_gmt":"2024-05-06T11:57:53","slug":"ftx-collapse-a-tornado-in-the-cryptocurrency-world","status":"publish","type":"post","link":"https:\/\/www.lexcapital.it\/en\/ftx-collapse-a-tornado-in-the-cryptocurrency-world\/","title":{"rendered":"FTX collapse: a tornado in the cryptocurrency world"},"content":{"rendered":"\n<p>With the<strong> bankruptcy of FTX<\/strong> \u2013 one of the most important trading platforms \u2013 the cryptocurrency sector is experiencing a major shake-up, as one of the <strong>main pillars on which the world of online currencies rested is crumbling<\/strong>.<\/p>\n\n<p>An event that risks <strong>triggering a tragic domino effect<\/strong> on the entire sector.<\/p>\n\n<p>Many compared the news to the Lehman Brothers affair, which <strong>triggered the sub-prime<\/strong> financial crisis in 2008.<\/p>\n\n<p>The effects are devastating, but here we will attempt to <strong>shed some light on what happened<\/strong>.<\/p>\n\n<h2 class=\"wp-block-heading\">Sam Bankman-Fried: a cautionary tale of cryptocurrencies<\/h2>\n\n<p>Just a <strong>few hours<\/strong> after the news was announced, the value of <strong>Bitcoin<\/strong> and <strong>Ethereum<\/strong>, the main cryptocurrencies in the market, plummeted by <a href=\"https:\/\/www.panorama.it\/economia\/fallimento-ftx-crisi-criptovalute-bitcoin\">15% and 24%<\/a> respectively.<\/p>\n\n<p>The <strong>news of the collapse<\/strong> saw the immediate withdrawal of one of FTX&#8217;s <a href=\"https:\/\/forbes.it\/2022\/11\/14\/ftx-fallimento-bruciato-fortune-decine-miliardari\/\">main outside investors<\/a>, <strong>Sequoia Capital<\/strong>, which had invested some <strong>$213.5 million<\/strong> in the platform.<\/p>\n\n<p>A holding <strong>second only to Venture Capital<\/strong>, whose value was <strong>estimated at around $425 million<\/strong>.<\/p>\n\n<p>As early as 9 November, the <strong>value of Sequioia Capital&#8217;s shares had dropped to $0<\/strong>. Then, two days later, FTX and FTX US filed for bankruptcy, which in the US was filed under <strong>Chapter 11 of the US Bankruptcy Code (&#8220;reorganization&#8221; bankruptcy)<\/strong>, with the aim of allowing the company to continue operating while negotiating with creditors.<\/p>\n\n<p>The collapse was followed by the <strong>resignation<\/strong> of the <strong>CEO Sam Bankman-Fried.<\/strong><\/p>\n\n<h3 class=\"wp-block-heading\">Sam Bankman-Fried: the rise of FXT and cryptocurrencies<\/h3>\n\n<p><strong>Sam Bankman-Fried<\/strong> was no stranger to <strong>intricacies and controversy<\/strong> in relation to his<strong> trading activities<\/strong>.<\/p>\n\n<p>Obviously, no one could have imagined such a dramatic fall from grace, seeing as <strong>Sam Bankman-Fried<\/strong>, with a fortune of around <a href=\"https:\/\/www.ilsole24ore.com\/art\/criptovalute-ftx-avvia-bancarotta-assistita-AER3bEGC\">$32 billion<\/a>, was among the <strong>top 100 richest men in the world according to the <a href=\"https:\/\/forbes.it\/2021\/10\/20\/sam-bankman-fried-storia-under-30-ricco-mondo\/\">Forbes<\/a> list<\/strong>.<\/p>\n\n<p>An MIT graduate in mathematics and physics, Bankman <strong>entered the world of cryptocurrencies almost by chance<\/strong>, although he had long had a <strong>passion for trading<\/strong>.<\/p>\n\n<p>He <strong>founded FTX in 2019<\/strong> and sold a stake in the business to <strong>Binance for $70 million<\/strong>.<\/p>\n\n<h3 class=\"wp-block-heading\">FTX bankruptcy: controversies and successes of the cryptocurrency platform<\/h3>\n\n<p>The <strong>history of the platform<\/strong> is, however, marked by <strong>great controversy<\/strong>.<\/p>\n\n<p><strong>FTX<\/strong> had repeatedly come to the attention of the <strong>Securities and Exchange Commission (SEC)<\/strong>, which has always called for <strong>strict and stringent regulation<\/strong> of the financial markets by the US government.<\/p>\n\n<p>The <strong>FTX platform<\/strong> was trading in <a href=\"https:\/\/www.lexcapital.it\/en\/italian-local-authority-derivatives-substantive-and-procedural-aspects\/\">financial derivatives<\/a>, even though such activities were <strong>not permitted by the US government<\/strong>.<\/p>\n\n<p>To <strong>get around this problem<\/strong>, Bankman chose <strong>Hong Kong and the Bahamas<\/strong> as the location of the company&#8217;s registered offices.<\/p>\n\n<p>Thanks to his ties with and generous donations to the <strong>Democratic Party<\/strong>, he was able to <strong>work undisturbed<\/strong>, avoiding \u2013 at least until the Biden administration \u2013 the imposition of regulatory measures with respect to cryptocurrencies.<\/p>\n\n<h2 class=\"wp-block-heading\">FXT bankruptcy: The Binance tweet that triggered the cryptocurrency crash<\/h2>\n\n<p>The <strong>trigger<\/strong> was a <a href=\"https:\/\/www.ilsole24ore.com\/art\/criptovalute-ftx-avvia-bancarotta-assistita-AER3bEGC\">tweet<\/a> by Binance <strong>CEO Changpeng Zhao<\/strong>, questioning the liquidity of FTX, in which <strong>Binance had a significant stake<\/strong>: $500 million.<\/p>\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Due to the recent revelations that have come to light, we have decided to liquidate any remaining FTT<br\/>on our books<\/p>\n<\/blockquote>\n\n<p>Indeed, as early as <strong>2 November<\/strong>, an online magazine raised questions about FTX&#8217;s solvency, in the <strong>event of an FTT collapse<\/strong>.<\/p>\n\n<p>The CEO justified the decision in another Tweet, where he recalled the <strong>failure of the LUNA token<\/strong> of the Terra ecosystem:<\/p>\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Liquidating our FTTs is just post-exit risk management, learning from Luna.<\/p>\n<\/blockquote>\n\n<h3 class=\"wp-block-heading\">The about-face of Binance<\/h3>\n\n<p>Binance&#8217;s CEO was not fully aware of the earthquake it would generate: a stringent <strong>mechanism to withdraw<\/strong> deposits by <strong>many customers<\/strong>.<\/p>\n\n<p>Proof of this is the fact that, soon afterwards, <strong>Zhao<\/strong> offered to take over the company, <strong>rescuing it from a situation<\/strong> that was now out of control.<\/p>\n\n<p>This decision, however, suffered a <strong>further setback<\/strong>, owing to a <strong>decisive tweet<\/strong>:<\/p>\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>The problems are beyond our control and our ability to help.<\/p>\n<\/blockquote>\n\n<h3 class=\"wp-block-heading\">FTX collapse: controversy in the cryptocurrency world<\/h3>\n\n<p>Suspicions regarding the <strong>reasons for the bankruptcy<\/strong> were aroused not only by the <a href=\"https:\/\/it.bitcoinethereumnews.com\/economy\/find-here-how-larry-summers-compared-ftx-meltdown-to-enron-scandal\/\">words<\/a> of former US Treasury Secretary Larry Summers, who compared the affair to the <strong>Enron scandal,<\/strong> but also by some unlikely stories about the platform possibly <strong>being hacked<\/strong>.<\/p>\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>FTX has been hacked; the funds seem to have disappeared. FTX apps are malware,<br\/>delete them. Don&#8217;t go to the FTX site: it could be a trojan<\/p>\n<\/blockquote>\n\n<p>These are the <a href=\"https:\/\/www.hdblog.it\/mercato\/articoli\/n563192\/ftx-cripto-furto-milionario\/\">words<\/a> stated by a director of the company on their<strong> Telegram<\/strong> channel.<\/p>\n\n<p>In fact, an <strong>analysis by Elliptic<\/strong>, an organisation that tracks cryptocurrency trades, analysed a total of <strong>$663 million diverted to other shores<\/strong>.<\/p>\n\n<p>Of this amount, <strong>477 million was allegedly stolen<\/strong>, with the remainder <strong>secured in FTX&#8217;s deposits<\/strong>.<\/p>\n\n<p>The <strong>loot comprises various cryptocurrencies<\/strong> \u2013 Entherum, Avalanche, Binance Smart and Solana \u2013 that were then <strong>converted into stable online currencies<\/strong> with decentralised exchanges.<\/p>\n\n<p>A <strong>technique commonly used by hackers<\/strong>, which would make the story appear plausible.<\/p>\n\n<p><strong>Less unconvincing<\/strong>, however, is the timing: coming <strong>just 24 hours after filing for bankruptcy<\/strong> suggests an attempt by the top management to <strong>salvage what remains before liquidation<\/strong>.<\/p>\n\n<h3 class=\"wp-block-heading\">Class Action Lawsuits<\/h3>\n\n<p>The <strong>victims of FTX<\/strong> are preparing to take <a href=\"https:\/\/www.wereporter.it\/crollo-ftx-codici-pronta-alla-class-action-per-tutelare-i-risparmiatori\/\">legal action<\/a> and, joined together in a rapidly expanding group of <strong>more than 50 members<\/strong> called the FTX CLASS ACTION LAWSUIT (CHAT), fearing that the official telegram might be shut down, they are organising themselves outside the exchanges&#8217; outlets.<\/p>\n\n<p>AJ, the <strong>creator of the group<\/strong>, said that a lawyer was still being appointed, but that this &#8220;<strong>should be finalised in a couple of days<\/strong>&#8220;.<\/p>\n\n<p>In order to <strong>collect information from creditors<\/strong>, the Group created a Google form called <strong>Users Affected by the FTX Bankruptcy<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>With the bankruptcy of FTX \u2013 one of the most important trading platforms \u2013 the cryptocurrency sector is experiencing a major shake-up, as one of the main pillars on which the world of online currencies rested is crumbling. An event that risks triggering a tragic domino effect on the entire sector. Many compared the news [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1148,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[39],"tags":[51,52],"class_list":["post-1404","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-updates-en","tag-cryptocurrency","tag-trading-online-en"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.8 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>FTX collapse: a tornado in the cryptocurrency world - Lexcapital<\/title>\n<meta name=\"description\" content=\"The collapse of FTX, shook the cryptocurrency sector and had a major domino effect on the whole of online finance.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.lexcapital.it\/en\/ftx-collapse-a-tornado-in-the-cryptocurrency-world\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"FTX collapse: a tornado in the cryptocurrency world - 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