FTX. A FIRST APPROACH TO THE MAJOR CRYPTO CRASH

Even though this is one of the most relevant events since the creation of cryptocurrencies, from our blog we will develop this news objectively and with care. Many speculations have arisen connected to the activities developed by Sam Bankman-Fried, FTX and Alameda Research.
Personal stories were made public; mismanagement by those operating billions of dollars of third parties invested in the malso came to lighttogether with fraud charges and rumors of having escaped to Argentina. From our position, we will try to make a brief summary based on the most relevant and reliable information available.
We will start with an article posted by one of the most popular media in the industry, Cointelegraph, making a report on the growing rivalry between the numbers one of Binance and FTX. Binance is the major exchange in the world, FTX was the second one with an outstanding growing development. FTX’s CEO, Sam, is also the founder of Alameda, one of the major crypto hedge funds.
Relevant information was made public lately revealing that the balance sheets of Alameda and FTX are dangerously connected through FTX token, $FTT. A huge portion of Alameda’s assets consisted of $FTT and other unstable cryptocurrencies. Concerns emerged related to insolvency, lack of transparency and illegal transactions by both companies.
The crisis bursts when CZ, Binance CEO, announces they would be selling all their holdings in $FTT due to the lack of transparency in FTX’s transactions. Binance’s holdings of $FTT -a token that cannot be easily exchanged for cash- amount to $ 590 million worth of the token. An open-market sale could be catastrophic for its price. Considering the situation, Alameda offered to buy all holdings in $FTT of Binance OTC to soften the impact of the market price, thus causing a bank run. Customers start withdrawing their holdings from FTX. This move causes the exchange to halt customer withdrawals confirming the suspects: FTX has no liquidity to meet its liabilities; the exchange is unable to meet the sudden demand for customers’ withdrawals.
Something quite similar to the 2008 financial crash, when the US government issued dollars to be loaned to banks to avoid an economic collapse. This controversial issue is known as “bail out”.
Thereupon $FTT price declined and FTX was purchased by Binance, the only player in the market with a good financial situation able to meet its liabilities. Binance swept away its competitor, becoming the leader in the CeFi universe.
Cited from this Twitter thread.
For further details we recommend this half-an-hour video posted by Coin Bureau with a detailed timeline of FTX collapse.This video posted by Cold Fusion has a more sensationalist vision of this event.
In the meantime, facts developed quickly. After CZ’s tweet on Tuesday announcing Binance would support FTX to overcome the liquidity crisis and SBF trying to bring calm, FTX’s legal team resigned on Wednesday and Binance withdrew from the deal to acquire FTX on Thursdayas a result of corporate due diligence. On Friday, FTX bankruptcy filing was reported by Reuters and Coindesk together with the resignation of SBF and the top executives. Today they are under the SEC investigation as reported by Unusual Whales.
Many players of the crypto ecosystem were forced to make some statements aiming to restore trust and confidence in the many legal crypto projects worldwide. We will share the article posted by Cryptocity with Vitalik’s statements:
“Ethereum co-founder, VitalikButerin, shared his opinion on FTX’s implosion, saying that its impact is much deeper than Terra’s (LUNA) crash. Buterin’s statement was made in response to a tweet that compared FTX’s collapse to that of Mt. Gox: “MtGox “looked” sketchy and never tried too hard to whitewash itself. Luna too. FTX was the opposite and did full-on compliance virtue signaling (not the same thing as compliance).”
He added that the FTX’s “type of fraud cuts deeper” than anything Terra or Mt. Gox could have caused.
Ethereum co-founder further argued that conversations related to centralized and decentralized exchanges miss a key issue, even though both of them act as a substitute for some kind of service. He pointed out that DEXs can be used for trading, custody and even leverages, but they are currently “unable to function as a fiat-crypto gateway.”
He concluded that “it depends on the details of the regulation, particularly the practical outcome in terms of what is the easiest process for converting $X of fiat into crypto and back.”
Considering the saga started (or, at least, was prompted) based on a tweet, it is relevant to take a glance at the comments on Twitter (not made by the protagonists such as SBF and CZ but for specialists who analyzed the event). We have focused on the threads by Pablo Sabatella and Alfredo Roisenzvit with a clear vision regarding this topic.
Undoubtedly, FTX’s collapse will have a great negative impact not only on FTX’s customers but also on the whole crypto industry, affecting many projects and exchanges and investors as well. If trust is not restored, negative effects are likely to keep on impacting on cryptoassets prices.
From our blog we will keep on developing the crypto news focused on the new regulations and the investigations carried on by the authorities, hoping to have fruitful results in the short term.