Enron, Lehman Brothers, Theranos, and now FTX will go down as one of the single largest bankruptcies in human history. All thanks in part to one genius wunderkind who took on the crypto markets by storm. A young and bright-eyed Stanford engineer managed to build a company worth more than $54 billion at its prime and, within the span of a month, bring it down in the most spectacular of ways.
Where did it all go wrong? The downfall of FTX occurred quickly and precipitously following the watchdog journalism from the cryptocurrency news site CoinDesk, which published a groundbreaking feature that led to the disturbing connections between Sam Bankman-Fried’s FTX crypto exchange and Alameda Research, the cryptocurrency trading firm also founded by Bankman-Fried.
CoinDesk unveiled Alameda’s financial balance sheet and recorded its largest asset to be roughly $5 billion worth of FTT, the token native to FTX that gives holders a discount on trading fees on its marketplace. The revelation prompted Changpeng Zhao, the CEO of rival crypto exchange Binance, to announce on Twitter that he would sell all of Binance’s holdings in FTT. From this moment onward, the public lost faith in FTX, withdrawing about $6 billion in funds from FTX to send the company—which was valued at $32 billion into a liquidity crisis.
Binance announced on Nov. 8 that it reached a nonbinding agreement to buy FTX’s non-U.S. businesses but announced on Nov. 9 that it had backed out of the bailout deal. “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” read a statement from Binance.
The Wall Street Journal reported on that the Securities and Exchange Commission and Justice Department are investigating FTX. Then on Nov. 11, FTX, FTX.US, Alameda Research, and more than 100 affiliates filed for bankruptcy in Delaware. “I didn’t ever try to commit fraud on anyone. I was excited about the prospects of FTX a month ago. I saw it as a thriving, growing business.”
On December 1, Congress held its first hearing regarding the matter, where Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), pushed for industry oversight. “I strongly believe that we need to move quickly on a thoughtful regulatory approach to establish guardrails in these fast-growing markets of evolving risk,” Behnam said. “Failure to act will leave consumers who have made investments in digital commodities largely unprotected.”
Which leads us to where we find ourselves today, with Sam Bankman-Fried maintaining his innocence. And an ongoing criminal investigation into not only SBF but the other team members of FTX and Alameda as well.
Did they know what they were doing? Or is this the perfect storm created by a ragtag group of aspiring entrepreneurs who grew this company too fast? Either way, there is little hope for the customers who trusted FTX, only to have their funds dissipate like quicksand.