In early November, cryptocurrency exchange FTX filed for bankruptcy after a chaotic series of events that have left all cryptocurrency markets and cryptocurrency credibility permanently damaged. As government investigations and potential criminal charges emerge, regulators are now targeting the digital currency after the cataclysmic and financially devastating episode.
Former FTX executive Sam Bankman-Fried was once originally considered the "JP Morgan of cryptocurrency" due to his wide-ranging influence and vision to "save cryptocurrency" with his centralized cryptocurrency exchange previously seen as a responsible choice. , often seen celebrity sponsored marketing FTX as a service accessible to cryptocurrencies. Jared Ellias, Harvard bankruptcy professor, comments on Bankman-Fried's undoing: "the speed of this failure is just unbelievable."
The crypto soap opera begins with Alameda Research, a cryptocurrency trading company that Bankman-Fried founded before FTX. Bankman-Fried was not part of Alameda after leaving for FTX; however, despite Bankman-Fried's claims, the two companies were significantly more involved with each other than the public was being told. Bankman-Fried owned 90% of the company and Alameda was actively listed on FTX while own exemptions of the FTX automatic settlement protocol. Additionally, Bankman-Fried and Alameda Research CEO Caroline Ellison had a romantic relationship.
Ultimately, the critical point of the implosion of FTX and cryptocurrencies abroad was when he borrowed against the FTT token, FTX's cryptocurrency, defrauding all investors by falsely moving the prices of their cryptocurrencies. Clients were lured in with ridiculous interest rates. However, how were interest rates supported? Of course, through loans where it was reinvested in the cryptocurrency. When people trapped in the crypto veil pulled back to show that FTT, like all cryptocurrencies, is stopped only by demand for crypto demand.
When CoinDesk leaked a copy of Alameda's balance sheet, the coin went from $22 to $3 in two days, triggering a cascade in which $152 billion in market value was lost across the world's 15 largest cryptocurrencies. In total, FTX's fraudulent business practices have plunged the company into at least $8 billion of debt.
The most important lesson from this is the market implications. While the damage to the economy is short-lived and there will be no significant broader impacts, except in the luxury car market, the cryptocurrency markets are undoubtedly being redefined. FTX fell from an untouchable crypto titan to next to nothing in a matter of moments. Like FTX, the value of crypto currency can evaporate in seconds: what is presented as an alternative way of exchanging money, superior to banks, ends up not fulfilling this promise. And FTX, whose outlet was a sophisticated centralized risk-management cryptocurrency exchange, made trading miscalculations and told some lies, but manipulated FTX investors as well as everyone connected to the scope of the FTX empire.
After the FTX saga, the final nail was driven into the deregulated crypto coffin. Fraudulent trading practices on centralized crypto exchanges have been red flag signaling to all sects of the United States government, and with good reason. The main selling point for investing in crypto was its lack of regulation and FTX has further demonstrated this weak coin trick.
What was originally a promising new technology, as it has been for some time, is slipping into obscurity. The financial world has been on edge recently as major companies and investors have been involved in cryptocurrency and FTX in one way or another. Crypto will soon be seen as a trend rather than a valid investment opportunity or financial device and the “crypto brother” stereotype will become much less of a stereotype and more of a reality.
