FTX collapse sends shockwaves through crypto sector
Founder Sam Bankman-Fried was once hailed ‘a winner’ and is now being referred to as a ‘rogue actor’.
As FTX tried to increase its influence, it bought the naming rights to an arena in Miami and ran Super Bowl ads [File: Marta Lavandier/AP Photo]
Published On 14 Nov 2022
14 Nov 2022
Sam Bankman-Fried has received numerous plaudits as he rapidly achieved superstar status as the head of cryptocurrency exchange FTX: the saviour of crypto, the newest force in Democratic politics and potentially the world’s first trillionaire.
Now the comments about the 30-year-old Bankman-Fried range from bemused to hostile after FTX filed for bankruptcy protection Friday, leaving his investors and customers feeling duped and many others in the crypto world fearing the repercussions. Bankman-Fried himself could face civil or criminal charges.
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“I’ve known him for a number of years and what just happened is just shocking,” said Jeremy Allaire, the co-founder and CEO of cryptocurrency company Circle.
Under Bankman-Fried, FTX quickly grew to be the third-largest exchange by volume. The stunning collapse of this nascent empire has sent tsunami-like waves through the cryptocurrency industry, which has seen a fair share of volatility and turmoil this year, including a sharp decline in price for Bitcoin and other digital assets. For some, the events are reminiscent of the domino-like failures of Wall Street firms during the 2008 financial crisis, particularly now that supposedly healthy firms like FTX are failing.
One venture capital fund wrote down investments in FTX worth more than $200m. The cryptocurrency lender BlockFi paused client withdrawals Friday after FTX sought bankruptcy protection. The Singapore-based exchange Crypto.com saw withdrawals increase this weekend for internal reasons, but some of the action could be attributed to raw nerves from FTX.
“Sam what have you done?” tweeted Sean Ryan Evans, host of the cryptocurrency podcast Bankless, after the bankruptcy filing.
Bankman-Fried and his company are under investigation by the Department of Justice and the Securities and Exchange Commission. The investigations likely centre on the possibility that the firm may have used customers’ deposits to fund bets at Bankman-Fried’s hedge fund, Alameda Research, a violation of US securities law.
“This is the direct result of a rogue actor breaking every single basic rule of fiscal responsibility,” said Patrick Hillman, chief strategy officer at Binance, FTX’s biggest competitor. Early last week, Binance appeared ready to step in to bail out FTX but backed away after a review of FTX’s books.
The ultimate effect of FTX’s bankruptcy is uncertain, but its failure will likely result in the destruction of billions of dollars of wealth and even more scepticism for cryptocurrencies at a time when the industry could use a vote of confidence.
“I care because it’s retail investors who suffer the most, and because too many people still wrongly associate Bitcoin with the scammy ‘crypto’ space,” said Cory Klippsten, CEO of Swan Bitcoin, who for months raised concerns about FTX’s business model. Klippsten is publicly enthusiastic about Bitcoin but has long had deep scepticism about other parts of the crypto universe.