The Fall of FTX and the Future of Crypto
If there is one crypto bro who fell from being part of pop culture and owning a large portion of the cryptocurrency empire, it’s Sam Bankman-Fried. Known as SBF on Twitter, the MIT graduate made large sums of money in crypto and before everything went wrong for him donated large sums of money to multiple different parties. He was a person many trusted and single handedly crashed the crypto industry.
The Rise And Fall of FTX:
He rose to his status by developing a net worth of about 9 billion dollars. He did this by exploiting many different strategies to make money quick. As an example, one of these strategies was: by selling crypto in Asian countries such as Korea and Japan where for example if a cryptocurrency, such as bitcoin, was traded at 10,000 USD in the United States it could be traded for 11,000 USD in those countries. By exploiting different strategies such as this for around three and a half years, he started to launch crypto trading firms. He first co-founded Alameda Research in 2017, followed by his founding of FTX. FTX was a rapid success and soon was valued over Twitter and the huge stock exchange Nasdaq.
However, the success came to an end abruptly. Someone leaked a balance sheet of one of SBF’s companies that revealed that the foundation of his empire was not solid at all. Customers and Binance, another cryptocurrency exchange, withdrew from FTX due to a liquidity crisis causing all his companies to declare bankruptcy.
Implications for the Bitcoin Market:
According to CoinMarketCap, the immediate impact of the FTX issue has caused bitcoin to plunge from USD 20k per coin to USD 16.5k per coin, with the whole market plunging 5%. Businesses and protocols with exposure to the FTX are demonstrating their liquidity. It is unclear whether any of the bitcoin that use that protocol would be recoverable if the FTX exchange fails and shuts down. Millions of dollars could be lost overnight as a result of it.
Since its November 2017 peak of USD 3 trillion, the market's total value has fallen to USD 800 billion. The decrease was a result of both macroeconomic problems and crypto-specific occurrences. The industry, which has been working hard to win over investors, regulators, and customers with its dependability and trustworthiness, has suffered a setback that will be difficult, if not impossible, to overcome. The fluctuations in the cryptocurrency market, which represent very little systemic threat, do not have much of an impact on the wider financial market.
What Does This Mean for the Future:
The Fall of FTX and its effects will reverberate in the cryptocurrency industry for some time. Of course, at some point, cryptocurrencies may rebound but that may never happen. SBF was a huge part of the crypto world. He was a huge deal and people trusted him a lot. With the fall of his empires the crypto world is asking, can we trust anybody again? Now, two months after the bankruptcy filing of FTX, the industry has been exposed to poor risk management, interconnected risks, and fraud. Because of this incident banks and agencies that started to welcome crypto are withdrawing from this industry. Regulators added that they had "serious safety and soundness concerns" about banks that concentrate their exposure to the industry or cater to customers who use cryptocurrencies. Of course this industry is still young and clearly has a long way to go; however, I feel that this incident will help this industry mature and evolve.