FTX - Bad to Bankrupt
Sam Bankman “Fried” is what happened in every sense of his name going from a net worth of over $16bn in early November to just $100,000 in the bank after filing for bankruptcy. Sam Bankman has been fried along with the majority of FTX investors. With backers as big as Brady, successful as Stephen Curry, and as lively as Larry David, how could an entire exchange as big as FTX possibly fail? Ever since its rise in popularity, crypto has always been perceived as a risky investment but for a whole platform to lose more than 80% of its value in the span of 72 hours… That’s something no one could have predicted. From a high of $85 to its current price of $1.30 the following will explore the factors which lead to the once prestigious exchange becoming nothing more than a shell of its past.
Let’s take a look, beyond the ticker.
Figure 1
For any company to grow as quickly as FTX, regardless of the sector is an impressive feat but also one that attracts competition. For FTX, this came in the form of Binance which essentially sparked the downfall of the exchange. On November 6, CZ (Binance CEO) tweeted that they will be liquidating any remaining FTT on their books which equated to around $2.1 billion. As FTX’s largest holding was FTT, CZ’s tweet sent FTX investors into a panic. In light of recent crashes such as Luna (see our report here) investors simply didn’t want to take another risk of complete bankruptcy. The skeptical outlook for the exchange led to withdrawal requests surpassing $6bn. This is when Alameda Research stepped in.
As a last-ditch effort, Alameda Research attempted to create a false perception of confidence surrounding FTX which can be seen below in their tweet.
Alameda had hoped that CZ would accept the off-market offer and save both parties a lot of heartaches and in essence, save the company to which CZ responded: “I think we will stay in the free market” signaling that he was intending to wipe out the company and his main competition which he did. Shortly after CZ’s tweets, FTX’s market cap plummeted. These threatening tweets came just days after Coindesk published a report stating “Alameda had $14.6 billion of Assets.” However, most of their valuation was based on FTT tokens making both companies extremely unstable
Many have commented on FTX’s management as being grossly incompetent. Upon closer analysis, FTX’s COO - Constance Wang had a mere 2 years of experience in risk management as well as being her first job out of university. After filing for bankruptcy, John Ray III was appointed as CEO for FTX and has gone on to say how he has never seen “an utter lack of record keeping.” Keep in mind, Ray worked on Enron…
What’s next for SBF? On December 12th SBF was arrested in the Bahamas after prosecutors in New York filed criminal charges. After exiting the courthouse, he was ordered to return back to prison where he will be detained until February 8th after being denied bail and when the case will be resumed.
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