Until recently, the FTX crypto bourse was ranked second in the world after its main competitor Binance. Its creator Sam Bankman-Freed, gained a reputation of a financial genius: he managed to gain a huge amount of capital just in a few years and become a multibillionaire. The crypto-exchange token called FTT showed steady growth and became more and more popular among investors all around the world. But on November 2nd, everything changed. Famous cryptocurrency media Coin Desk published an investigation article revealing breaking news that the FTX exchange was backed only by tokens issued by its subsidiary company called Alameda Research. By that time Alameda had $14.6 billion in assets, but the problem was that most of these assets were not kept in fiat currency or in a widely traded digital currency such as Bitcoin, but almost only in their own illiquid FTT token.
This investigation caused enormous concern among investors. And already on the 5th of November the twitter account Whale Alert that monitors significant cryptocurrency movements, reported that nearly 23 million FTX tokens worth more than $584.5 million had moved to Binance. The next day Binance CEO Changpeng Zhao confirmed that he wants to liquidate all of its FTT assets. This news caused a rapid drop in the value of the coin, and all other clients run to withdraw money from the platform. A liquidity crisis formed: the exchange simply did not have enough money to fulfill all the transactions. And just in 72 hours, after the withdrawal of about $6 billion, FTX announced that no more operations on the platform can be processed.
Trying to save FTX, Sam Bankman-Freed was desperately looking for investors. And despite Binance was considered as one of the potential buyers, after analyzing the situation, Changpeng Zhao refused the offer, and this rejection doomed FTX to final collapse. Unable to attract investments, on the 11th of November FTX officially filed for bankruptcy.
This situation has become truly shocking for the whole crypto world. The authoritative crypto bourse, which was in the top 3 in terms of capitalization, simply collapsed in a few days. And the consequences reflected on the entire industry, affecting other cryptocurrency exchanges, that as in the domino effect began facing liquidity crisis due to a large number of withdrawal requests. This sudden collapse of FTX revealed that cryptocurrency exchanges may have problems with capitalization. On paper, FTX was worth billions of dollars and attracted real money from real investment funds, but provided hand-issued tokens as collateral, which collapsed as soon as breaking news appeared in the media. This all showed how huge risks really are in this trading games, as almost every exchange platforms has such tokens. In particular, Binance has Binance USD.
The hit wave touched even crypto giant Bitcoin which rate fall to its lower mark for the last 2 year by the end of November 10th. And in spite of its fast rehabilitation specialists from J.P. Morgan believe that it can drop to $13,000 by the end of 2022. But let’s not be overdramatic here and keep both eyes open. The most risky tokens are still those in which invested FTX and Alameda. So to be on the safe side we advice you to check the list of these companies prepared by the famouse crypto journalist Colin Wu.
This wasn’t the first story on the pages of crypto history. Everything that happened to FTX remind the epic collapse of Terra Luna, that also happened quickly and mercilessly. So, what essential lesson should we learn here?
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