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In early November, an epic battle took place between Binance, the world’s leading cryptocurrency exchange, and FTX, its challenger, through their respective leaders. Indeed, FTX has been in very bad shape lately and a takeover proposal has been made by Binance. The fallout was not long in coming, with major cryptocurrencies taking a heavy hit over the next two days. Bitcoin, the colossus of the crypto sphere, fell by more than 10% in one day, other currencies were even more affected, such as Solana that lost more than 30% or FTX that fell by more than 70%.
What were the reasons for this apocalyptic situation? How could it have had such an impact on the market? What can you expect next?
FTT AT ALAMEDA RESEARCH: THE BEGINNING OF THE NIGHTMARE
On November 2, CoinDesk media revealed a close connection between FTX and Alamada Research, the two companies of Sam Bankman-Fried (known as SBF). Indeed, according to a financial document CoinDesk reportedly reviewed, as of June 30 this year, Alamada Research’s assets would consist of $3.66 billion in “unlocked FTT”, out of a total of $14.6 billion. Liabilities would show $292 million in FTT, out of a total of $8 billion. The problem is that the “FTT” is the exchange token issued by the FTX company, suggesting that the SBF empire could have liquidity and insolvency problems.
Four days later, Alameda Research CEO Caroline Ellison spoke about the situation, specifying that this report “only covers a subset of [nos] legal persons”.
INTERVENTION OF CZ ON TWITTER AND FALL OF FTT
Changpeng Zhao (known as CZ), CEO of Binance, announced on November 7 in response to these revelations that it had made the decision to sell its $2.1 billion stake in FTX (including FTT and BUSD stablecoins), with particularly considered for risk. This announcement, made publicly on Twitter, was felt instantly, sending the price of FTX’s proprietary cryptocurrency down 30% overnight.
According to Bloomberg, FTX’s stablecoin reserves fell to $114 million on the same day, from $394 million three days earlier.
Further tweets were then posted to both CEOs’ accounts discussing FTX’s creditworthiness. SBF claimed in these tweets that they had no problem processing withdrawals and that the money was safe.
FTX INSOLVENCY AND CONSEQUENCES
Despite SBF’s attempt to calm down, investors were not convinced. The next day, Tuesday, November 8, the FTT continued to fall as withdrawals piled up on the FTX platform. The more time passed, the fewer withdrawals were processed. At the same time, the price of FTT continued to decline. These events have confirmed investors’ fears and hopes of ever seeing their money back have become increasingly dim for users.
FTX then spoke on twitter, the platform announced that it had entered Chapter 11 bankruptcy proceedings in the United States. The world’s No. 2 stock exchange has gone under the US bankruptcy regime. The group then claimed more than 100,000 creditors with debts estimated at between $10 and $50 billion.
The bankruptcy concerns FTX.com and FTX.us while the Bahamian subsidiary of FTX is not included in the restructuring plan. In addition, the platform’s CEO Sam Bankman-Fried officially announced his resignation on Friday, November 11. John J. Ray III has been appointed as interim CEO until light is shed on this story.
Many users have therefore lost their entire wallet, withdrawals are blocked for them both in the United States and in the European zone. As of last Friday, it appears that the platform has not completed any withdrawals. This decision would surely come from FTX’s new management.
For their part, the partners flee in order not to tarnish their image with that of the exchange: Visa announces that it is ending its partnership with regard to the crypto card; Mercedes, which had signed an agreement to promote FTX on its single-seaters in F1, announced it had suspended the agreement and continued to closely monitor the situation. On the basketball side, the Miami Heat team also terminated his contract, also relinquishing the name “FTX Arena” for his stadium.
DESCENT TO HELL
FTX’s descent into hell continues even after the bankruptcy announcement for the exchange platform. Indeed, it reports that it has been hacked and that it has been robbed of several hundred million dollars. Some media speak of more than 600 million. The platform then came forward and said security had been compromised and advised against logging into the app or website.
Tether, for its part, managed to blacklist $31.4 million related to FTX hacks (in the form of USDT), preventing hackers from using it. Other news came to exacerbate the fate of the former CEO of FTX: he indeed transferred $ 10 billion from users’ funds without their knowledge to Alameda Research, and research shows that between $ 1 and 2 billion may have been withdrawn (in a unknown way) and thus not even invested, making the situation even more critical.
On the other hand, employees of the bankrupt exchange and those of Alameda Research would have been heavily influenced to deposit their capital on FTX amid false promises and lies, leaving them in the same place as other users. In addition, The Block reported that FTX initiated more than 10 real estate buyouts in the Bahamas for $74 million.
SBF’s fate is not yet known, but the latest news is that he is in the Bahamas, where he has been questioned by police, and detectives from the Financial Crimes Unit have come to help investigate possible actions by criminals. The Alameda Research chief would try to join Dubai, which has no extradition agreement with the United States.
Of course, this chain of events marking the defeat of the second largest cryptocurrency exchange in the world is not without consequences.
In the wake of the FTT token, the entire cryptosphere has been affected. Whether it is the liquidation of billions of assets on the platform, the withdrawal of investors during these events, or even the confidence in these assets that has fallen to an all-time low, the cryptocurrency market has taken a huge hit, losing more than 25 % of its weight or more than $250 billion has gone up in smoke.
The consequences will certainly also be felt in the long term: the confidence of investors, institutions and more generally of the general public has been severely damaged and is very difficult to regain.
Indeed, the image of the “crypto” universe has taken time to build in the right direction, it still remains highly controversial, especially among the oldest generations. Judged by many people as dangerous, inscrutable and highly abstract, the cryptosphere will have a hard time recovering its image after these latest incidents.
But that is not everything. From this effect comes another effect that affects the market, its operation and the concept behind cryptocurrency: regulation.
The basic idea of these currencies was precisely an idea of total transparency: to be accessible to everyone, to everyone, by everyone, and not guided or controlled by different rules and institutions. It is from this philosophy and idea that all innovations related to this ecosystem are derived.
It is also very clear that this “ideology” does not please the financial world, which has been trying for years to subvert and control this crypto sphere like “traditional” investments under the guise of “security”. . An event like FTX’s defeat is a godsend for these institutions: it opens the door for regulations and new laws to “protect investors” and thus maintain control of the market. Cela va à l’encontre de tous les principles et fondements de la blockchain, et risque de décevoir bon nombre d’investisseurs qui croient réellement en cette Technologie, en plus de tottalement empêcher la réalisation de ce pourquoi les cryptomonnaies ont été véritablement créées à l ‘ancestry.
Finally, apart from the economic consequences, it is the investors who are affected. Many people were affected by this disaster, many lost all their savings and suffered a de facto devastating psychological and moral impact. Confidence in the various stock exchanges had weakened, and the sad and famous saying “not your key, not your money” is once again taking its toll.
Directed by Mathis Erba, Charles Dhennin with the help of Marc Dagher
Article originally published on DT Expert