The troubles of FTX, a major digital currency trading platform, are causing turmoil across the industry. After failed rescue attempts, the crypto exchange is now insolvent. CEO Bankman-Fried resigns.
After the bad news about FTX Digital Markets didn’t stop, the crypto exchange is now officially insolvent. After failed rescue attempts, the group applied for bankruptcy protection in the USA, as FTX announced. In addition, company founder Sam Bankman-Fried announced his resignation but said he still wanted the proper handover to the new boss, John J. Ray III., to accompany.
The 30-year-old ex-Wall Street trader had been desperately looking for fresh capital to save the trading platform for cryptocurrencies like Bitcoin, which was only founded three and a half years ago. The crypto brokerage house Alameda Research, which is connected to FTX, and around 130 other companies also fled under creditor protection according to Chapter 11 of the US bankruptcy code. Alameda was considered the trigger for the turbulence at one of the world’s largest crypto exchanges.
Assets already frozen
The Bahamian securities regulator reported last night that it had frozen FTX assets and appointed an insolvency practitioner to handle the transaction. The supervisory authority has already submitted a corresponding court application. The group’s international operations are based in the Bahamas. According to the local securities regulator, FTX is suspected of having embezzled customer funds.
According to an insider, the US securities regulators SEC and CFTC were also investigating FTX. The German financial regulator BaFin said it is also closely monitoring the crypto market. However, FTX is not subject to their supervision.
FTX Digital Markets is part of tech entrepreneur Bankman-Fried’s crypto empire and operates the struggling crypto exchange FTX.com. The imbalance of the large trading platform for digital currencies has kept the crypto market in suspense for days. She got into payment difficulties on Sunday after doubts about the capital reserves had led to a flight of customers and withdrawals of funds in the billions.
Binance takeover failed
Since then, many customers have feared for their money. The crypto bank BlockFi, which was supposed to be taken over by FTX in the summer, stopped all withdrawals of customer funds for the time being. According to the brokerage house Genesis, 175 million dollars are on fire in trading transactions on the FTX. Bankman-Fried had assured this week that all deposits were protected and would be paid out in full. The 30-year-old had rejected rumors about a lack of money as false.
At the same time, however, the top management of the group had negotiated with competitors and other investors about a multi-billion dollar cash injection to save the company – which failed. On Wednesday, it initially looked as if the competitor Binance would take over the company. However, after a comprehensive audit, the world’s largest crypto exchange refrained from the planned takeover of the FTX.com division.
According to industry sources, the liquidity bottleneck should amount to seven billion dollars. However, it could also be more: FTX tried at times to get financial support of around 9.4 billion dollars from investors and rivals, as the news agency Reuters quotes an insider.
Yesterday Bankman-Fried tried to calm the situation on Twitter and claimed that FTX.us was “100 percent liquid”. However, at the same time, the platform announced that it might suspend trading for a few days. US media also reported that employees in the US were trying to sell parts of the company in a kind of distress sale.
Now the turbulence could have consequences not only for customers who may lose their money but for the entire industry. “The recent confusion is similar to the Wild West and is likely to have regulatory consequences. The developments are, therefore, also increasing regulatory pressure around the world,” said Bitcoin specialist Timo Emden from Emden Research. In fact, calls for stricter regulation of the sector are growing.
Bitcoin under pressure
The future of FTX is also leaving its mark on cryptocurrency prices. On Wednesday, the oldest cyber currency, Bitcoin, fell below the $ 16,000 mark for the first time since 2020 in the wake of the turbulence. However, the price bounced back above $17,000 yesterday following US inflation data. According to the latest news, he’s slipping off again today.
However, Bitcoin has been under pressure for a long time. In the past twelve months, it lost around 70 percent of its value.
Read also: Crypto exchange FTX before settlement