The Futures Exchange (FTX) made headlines when the company filed for Chapter 11 bankruptcy, and the Chief Executive Officer (CEO) and founder, Samuel Bankman-Fried (SBF), stepped down from his position. The ex-CEO lost around 94% of his net worth within a flash.
Helprin Management Tokyo Japan reviews the FTX incident due to its impact on financial technology’s future as one of the leading cryptocurrency exchanges. Investors can learn a lot from what happened to SBF and FTX, especially regarding investments and handling funds.
Sam Bankman-Fried
California-born Sam Bankman-Fried graduated with a physics degree and a mathematics minor from the Massachusetts Institute of Technology (MIT). Helprin Management Tokyo Japan reviews that SBF launched Alameda Research in 2017 after stints at Jane Street, a trading firm, and in the charity world. In 2019, SBF and his team established FTX, a cryptocurrency exchange platform with advanced options and low trading fees. According to Bloomberg, both businesses’ had a combined net profit of $1.350 billion in 2020 alone. At his peak, SBF was worth $26 billion and was already a major political donor at 30.
Before the tragic event wiped out his net worth, he was considered the wealthiest man in crypto. By November 11, 2022, the Bloomberg Billionaires Index claimed he had no material wealth.
What Happened to FTX?
SBF made headlines with his different moves, like getting naming rights to an arena and having celebrities hawker FTX. He was on top of the crypto world. So what happened?
Alameda x FTT
At the beginning of November, CoinDesk, a widely popular crypto publication, called into question the stability of SBF’s empire. The report discovered that although Alameda Research and FTX are two separate entities, most of Alameda’s assets were in FTT, a coin that FTX had developed. Technically, there’s nothing wrong about doing that, but the fact called the FTX’s liquidity into question.
Things got worse a couple of days later when Binance CEO Changpeng Zhao (CZ) liquidated around half a billion worth of FTT and prompted other customers to pull out, with FTX getting $6 billion in withdrawal requests within three days of customers panic selling.
FTX x Binance
The platform struggled to fulfill the sudden demand and plunged the value of FTT by 32%. The value only recovered upon the surprise announcement on November 8 that Binance, the world’s leading cryptocurrency exchange in daily trading volume, would bail FTX out by buying it. Investors were hopeful about the acquisition.
However, Binance announced on November 9 that it wasn’t interested in FTX after due diligence reports of customer funds mishandling and possible federal investigations. The news plunged FTT further, which resulted in 94% of SBF’s net worth gone.
SBF started calling other industry rivals for a bailout, but no one wanted to help him recover the loss. On November 11, FTX filed for Chapter 11 bankruptcy, and SBF resigned as its CEO.
Where FTX went wrong
SBF took to Twitter to express that he made lapses in judgment, blaming FTX’s implosion on a combination of incorrect debt estimates and high customer withdrawals. However, a Reuters report stated unnamed sources that claimed earlier in 2022, SBF transferred funds to Alameda from FTX after the former experienced a series of losses. He allegedly didn’t tell anyone, and FTX didn’t respond to the request for comment.
What this means for the crypto sector
Sequoia Capital, SoftBank Vision Fund, BlackRock, Tiger Global, and other high-profile investors backed FTX after their due diligence. Aside from that, CoinDesk reports that SBF’s inner circle ran the operations with him in the Bahamas. According to their unnamed source, some employees put their life savings into FTX and trusted that everything was okay.
The crypto sector has been experiencing a rough year with $2 trillion blow in May, and now the market value is down 12% after news of FTX hit the stands. Crypto investors fear that a crash is imminent, although some believe that FTX is just one exchange and it doesn’t impact the rest of the industry.
Elon Musk took to Twitter to say that he didn’t believe SBF had $3 billion liquid when the latter made the offer regarding the Twitter acquisition.
Bottomline
Financial technology still has a long way to go, and it needs the full support of investors and other business makers. However, due to the recent market movements, cryptocurrency and blockchain investments have become riskier as more players have entered the field. To some investors, FTX’s downfall casts a shadow of doubt about the longevity of the crypto industry.
Helprin Management Tokyo Japan believes in sufficient investment portfolio diversification, so the company’s financial managers will ensure every client has a suitable variety. If you recover your assets from FTX, you could use them to invest with professional financial advisors for better growth and profits.
