Crypto Companies Around the World Face Aftermath of FTX Collapse
Disgraced founder and former CEO of FTX Sam Bankman-Fried (aka SBF). Photo: Lam Yik | Bloomberg News
The collapse of the crypto exchange FTX on November 11th sent shockwaves through the crypto industry, prompting companies to set new restrictions in the aftermath and shaking up crypto investors worldwide.
The Bahamas-based crypto exchange FTX filed for Chapter 11 bankruptcy last week after a whopping $32 billion overnight collapse. FTX’s founder and former CEO, Sam Bankman-Fried, opened an investment fund called Alameda Research that allegedly dipped into FTX customer deposits. This inspired panic among FTX customers, prompting a bank run that led to the company’s bankruptcy. Bankman-Fried, once a 30-year-old billionaire, lost most of his fortune and faces legal scrutiny for his corporate failure.
FTX’s bankruptcy filing lists over a million creditors, including several crypto startups. Around 130 affiliated companies are also part of the proceedings. Several individual investors lost thousands of dollars from the collapse and are unsure if they will ever get their money back.
The bankruptcy of FTX comes at a tough time for the technology industry. Cryptocurrencies were already dropping in value, and their exchanges were facing regulatory scrutiny in the US. Now major crypto exchanges must navigate the aftermath and avoid making the same mistakes as Sam Bankman-Fried.
Genesis Block, a leading crypto exchange based out of Hong Kong, announced they plan to end trading by December 10th. Chief Executive Wincent Hung said, “We have ceased trading, as we don’t know which counterparties would fail next, so we would rather close out all our positions to regain some liquidity.” The company also asked customers to withdraw their funds and will not accept further customers.
Genesis Global Capital paused new loan redemptions on Wednesday, saying preserving customer assets was their top priority. They plan to keep Genesis Trading, their broker and dealer, fully operational. A Genesis spokesperson revealed that Genesis paused redemptions due to a lack of liquidity to meet lending obligations, exposing the aftermath crypto companies face from FTX’s bankruptcy.
Crypto exchange BlockFi also paused withdrawals and deposits and plans to lay off several employees as it prepares for a potential Chapter 11 bankruptcy. The company admitted to having close ties with FTX and Alameda Industries.
American football star Tom Brady who made deals with FTX and now faces a class-action lawsuit for endorsing FTX and crypto. Photo: Sven Hoppe | Zuma Press
The value of cryptocurrencies fell following FTX’s collapse, which raised significant scrutiny about the reliability of trading crypto. Governments likely will not bail out crypto exchanges the way they would a bank, hacks are irreversible, and misplaced funds are not easily retrieved. This year, many risky bets for crypto projects resulted in ‘death spirals’ and multi-billion dollar losses by investors. Now, Bankman-Fried and about a dozen celebrities, including Tom Brady and Larry David, face a class action lawsuit for endorsing FTX and crypto after American consumers lost over $11 billion from the collapse.
FTX’s rival exchange Binance noted only a ‘slight’ uptick in withdrawals following the FTX collapse. Binance CEO Changpeng Zhao commented, “A couple of years later, all of this will blow away. People may not even remember this.” The future of crypto remains uncertain, given the drastic fall of FTX and the subsequent response by other crypto exchanges and investors. Bankman-Fried spread great distrust in an already dubious crypto industry.