FTX Collapse, What It Means for Crypto’s Future

On November 11, 2022, cryptocurrency exchange FTX filed for Chapter 11 bankruptcy protection following a quick fall from glory. Sam Bankman-Fried, the company’s founder and CEO, saw his $16 billion net worth drop to almost nothing as the company’s value plummeted from $32 billion to bankruptcy in a couple of days. 

What is FTX? 

FTX is a marketplace for buying and selling digital assets including bitcoin, dogecoin, and ether. As more consumers sought to invest in cryptocurrencies without having to deal with the technical aspects of such transactions, such setting up a crypto wallet, such platforms gained popularity in recent years. 

Bankman-Fried founded FTX at the age of just 28, it quickly rose to prominence as one of the biggest cryptocurrency exchanges, with a $32 billion value. 

UWM Students Future Crypto Investments 

Osama Khatib is a 21-year-old student at UWM who has been investing in crypto currency for several years. Khatib doesn’t believe the FTX collapse is the end of crypto, in fact he thinks this is a good thing for investors. 

“All the market indicators show an impending market crash in the future,” Khatib said. “I’m staying very liquid right now and betting on the stock market to crash.” 

Brady Markee is a 22-year-old UWM student and is new to investing in crypto. Markee did take a massive hit on the FTX collapse, but hasn’t lost hope yet, this may be a big opportunity. 

“The collapse was such a huge downfall and loss in revenue, I don’t know how they’re going to bounce back, they are literally fleeing the country,” Markee said. “But I would say it might be a good time to reinvest because of how low the price is now.” 

Bankman-Fried’s Downfall 

On Twitter, Bankman-Fried acknowledged the liquidity situation and apologized for FTX’s non-U.S. exchange’s inability to satisfy consumer demand. According to Bankman-Fried, FTX calculated leverage and liquidity incorrectly as a result of “poor internal labeling.” He stated that Alameda would stop trading in the same post.^[1]

On November 11, Bankman-Fried resigned as CEO of FTX and was succeeded by John J.^[2] Ray III, who had previously guided the energy trading company Enron through bankruptcy procedures. 

The same day, FTX discovered that around one hundred thirty extra associated companies were conjointly concerned within the proceedings once it filed for Chapter eleven bankruptcy protection. per the bankruptcy documents, FTX has assets between $10 billion and $50 billion and liabilities between $10 billion and $50 billion.^[3]

Unapproved FTX Transactions 

After declaring bankruptcy, FTX immediately claimed it had been the target of “unauthorized activities” and that it would shift its digital assets to cold storage for security reasons. The estimated theft from FTX in the alleged attack, according to experts from outside sources, was $477 million.^[4]

FTX’s future 

It will take some time before the wider ramifications of the FTX debacle on the bitcoin market become clear. Investors may be already wary because of worries about stability and security, but FTX, the worst drop in the brief history of cryptocurrencies, may put them off even more. Customers using the FTX platform could be unable to retrieve their assets, which could result in legal action. The collapse of FTX may be used as justification by the U.S. Securities and Exchange Commission (SEC) and other regulators for strengthening regulatory oversight of cryptocurrencies, and Congress may be more willing to intervene and enact new legislation regulating crypto.^[5] 

The shocking demise of the third-largest exchange in terms of volume will cause ripple effects across the cryptocurrency community for some time. BlockFi, a cryptocurrency lender, halted client withdrawals on November 11, 2022, and speculations suggest that company may face trouble in the future. On Nov. 12 and 13, 2022, there was a spike in withdrawals on Crypto.com. Customer withdrawals from Genesis Global Capital’s cryptocurrency lending business have been suspended. And the collateral harm has probably just begun.