Bitcoin Bombshell: FTX, $32 Billion Exchange On The Brink Of Collapse
Summary
FTX, formerly the second-largest crypto exchange in the world, suddenly halted withdrawals yesterday. FTX is best known for its quirky billionaire founder, Sam Bankman-Fried.
Investors pulled $6 billion in deposits from FTX after allegations that customers' crypto was not fully backed. This was after FTX itself had rescued other crypto exchanges earlier in the year.
A bailout is in the works by rival Binance, the world's largest crypto exchange. But the bailout is non-binding, and it's very possible they pull out after doing due diligence.
Bitcoin crashed nearly 14% in the immediate aftermath, while the value of FTX's token (FTT) tanked nearly 80% in one day.
You can't make this stuff up!
What The Heck Happened to FTX?
While the world was busy with U.S. midterm elections, the crypto world was rocked by a multi-billion dollar run on the exchange FTX, formerly valued at $32 billion. Bitcoin (BTC-USD) was down 14% at one point, while FTX's token (FTT-USD) plummeted by 80% on relatively low volume (in my opinion) given the magnitude of the crash.
FTX is best known for its Bahamas-based billionaire founder, Sam Bankman-Fried. Over the last 6 months, Sam Bankman-Fried has testified before Congress about Bitcoin regulation, bought 7.6% of Robinhood (HOOD), bailed out Voyager Digital (OTCPK:VYGVQ), and donated nearly $40 million to various political races. But now, FTX may have been a house of cards all along after depositors pulled $6 billion and it suspended customer withdrawals. Thankfully, the small part of FTX that operates onshore in the U.S. seems to be operating normally for now. Before this, Bankman-Fried had been compared to J.P. Morgan (the man, not the bank) as a savior to the industry. A potential bailout for FTX customers by rival exchange Binance (BNB-USD) is now in the works, but it's not bound to buy the company if the balance sheet turns out worse than it thought, and as of Wednesday morning, that was looking like a distinct possibility.
So what happened? Sam Bankman-Fried (a.k.a. SBF) recently became embroiled in an increasingly bitter Twitter (TWTR) feud with Binance founder and fellow crypto billionaire Changpeng Zhao (a.k.a. CZ). Zhao operates out of Singapore, and unlike SBF, cultivates an image as more of a rebel- almost entirely eschewing the idea of onshore regulation. The public feud is especially unusual because Binance/Zhao was previously a large investor in FTX, and took ~$2 billion in FTX's token when they later divested.
Zhao and Bankman-Fried have had no love lost for a while now, but things seem to have heated up when Bankman-Fried seemed to imply in a tweet late last month that Zhao may be unable to physically come to the United States- which I'm guessing is an allusion to the ongoing investigation of Binance for money laundering. Zhao has claimed that Bankman-Fried was lobbying Congress against competitors like Binance behind their backs. But the tables soon turned. Not long after, an article came out citing leaked documents detailing the possibility that much of SBF's assets in his main company, Alameda Research, were tied up in highly illiquid assets while his liabilities could potentially be called, threatening FTX as well. Since then, independent analysis of the FTT token's liquidity paints a troubling picture as well.
Zhao's response- he would sell his stake in Bankman-Fried's FTT token. Bankman Fried's second-in-command then said they'll buy the tokens back for $22. Zhao called the bluff and started unloading hundreds of millions of dollars of coins on the open market. But while SBF was a deca-billionaire on paper, his team didn't have the cash liquid to defend the $22 level. Not having the money to defend the peg on FTT then sparked a giant bank run on FTX, with depositors reportedly pulling $6 billion in assets in just 3 days. As of yesterday, FTX has suspended withdrawals. Insane!
And not having the money here creates the rebuttable presumption that despite being hailed as a financial genius by the media, Bankman-Fried's empire may have been fueled in large part by risky bets with depositor money. This is a really bad look, especially considering the wild spending on acquisitions, political contributions, and sponsorships of NBA, MLB, and Formula 1 racing. SBF even tried to co-invest in Elon Musk for the Twitter buyout but was rejected by Musk. FTX recently raised $420 million from investors, led by the Ontario Teacher's Pension Fund. That money is likely gone forever. Bloomberg has estimated in a back-of-the-envelope calculation that 94% of Bankman-Fried's net worth has now been "eviscerated". So what will happen to FTX? Bankman-Fried went silent on Twitter after days of vocally defending FTX. Then after getting slammed with withdrawals, SBF tweeted that Binance is entering a "strategic transaction" with FTX to buy the offshore part of FTX that represents the vast majority of the company's total operations.
Binance Bailout: Will Binance Buy FTX?
Probably. But then again, maybe not.
The wording of the tweet and the thread below it offering a "huge thank you" make it seem like an apology was demanded by CZ's team. Strategic transaction in this case means a fire sale like the one where Bear Stearns was bought for $2 per share after trading for $150. SBF bailed out BlockFi and Voyager Digital this summer for pennies on the dollar, and now the hunter has become the prey. How much is FTX worth? A few months ago, it was valued at $32 billion. Now it might be worth zero if it's not bailed out, or it might be worth whatever Binance agrees to pay for it.
So is this legal? It probably wouldn't be in the U.S., at least not for banks or broker-dealers. Spreading rumors about competing banks is understood to threaten the whole system. But in the offshore crypto world, people tend to be based in jurisdictions that take a more relaxed view of these sorts of things as long as the money is flowing.
In some ways, this is genius for Zhao because he called a competitor's bluff on having liquidity and essentially got FTX's business for free. The deal is so good for Zhao that he gets to now do due diligence and either re-trade or back out of the deal if he finds the financials are worse than expected. Remember that shotgun weddings between firms in 2008 almost brought down several banks, most notably Bank of America (BAC) after they absorbed Countrywide Financial. But in other ways, it's problematic. Binance is the largest crypto exchange in the world. That means if Binance subsequently runs into trouble, there's no one to rescue it. Bankman-Fried famously said in July that the shoes had all dropped. Scarcely more than 100 days later, FTX's shoes were the ones to drop. The irony is thick here. Were their assets really that concentrated in a bunch of altcoins and their liabilities in US dollars? I suppose we will soon find out more.
How Does The FTX Scandal Impact Bitcoin?
SBF likely owns a lot of Bitcoin, so he's going to be a forced seller.
That's going to put a bunch of pressure on BTC in the coming days. He owns a lot of Robinhood as well, so that's probably going to be on the sale block. He probably will be dumping U.S. Treasuries too (the Treasury market can handle it) and a bunch of other random assets. I'd assume that FTT will suffer the same fate as Terra (LUNA-USD) and that it will be worth close to zero.
There's a very important distinction that may be lost in the hoopla around the possible insolvency and bailout of FTX. Bitcoin is a decentralized algorithm that allows people to store value on the blockchain. The vast majority of these slick "innovations," charismatic founders, and pyramid schemes are coat-tailing the massive success that Bitcoin has had by offering an alternative to central bank currency. By and large, altcoins are not the real deal though. Seeking Alpha contributor Lyn Alden Schwartzer recently called them "clown bucks."
I'll give them credit- a lot of these guys are slick. While there's yet no clear and convincing evidence of anything criminal happening at FTX, crypto hustlers fooled pension funds, fooled Congress in some cases, and as with BlockFi, they fooled me and my friends, although thankfully I redeemed my money before the crisis. There are many legitimate opportunities to add value in the world, but crypto seems that it may have attracted some of the shadiest people. This isn't inherently Bitcoin's fault- recently we've seen how Bitcoin has lent a lifeline to groups of people living under Lebanon's collapsing government. A recent CNBC piece profiled a 22-year-old running a Bitcoin mining operation off of hydropower, solar panels, and fuel. When done right, Bitcoin is a tool of freedom. When done wrong, Bitcoin is exchanged to buy gambling chips at the altcoin casino. The last few months have made it abundantly clear that there needs to be reform on the crypto exchange side (to prevent hacks and exchange implosions), and on the regulatory side as well. These efforts are ongoing.
Bottom Line
Massive crypto exchange FTX is on the brink of collapse, suspended withdrawals, and is awaiting rescue via a fire sale to competitor Binance. High-profile investors like big Silicon Valley venture firms and public pension funds are likely going to lose a ton of money on FTX. You can bet your bottom dollar that criminal and civil investigations have likely already begun in the US and in other countries into how FTX collapsed. Yet another shoe has dropped in the altcoin world, and it likely won't be the last. I do view further failures of altcoins and stablecoins as possibly representing an opportunity to buy Bitcoin for those who believe in the long-term potential. But these events are a very clear warning sign for investors to get out of stablecoins and altcoins before it's too late. Bitcoin will come back, but the money in these crazy DeFi schemes and altcoins is likely going to end up missing after a tragic game of musical chairs.
What do you think? Feel free to share your thoughts, comments, or any insight you have into the FTX situation below!
FTX founder issues public apology as company verges on collapse
Sam Bankman-Fried, the crypto entrepreneur whose FTX exchange has been in a death spiral this week, tweeted a candid apology Thursday morning.
“I’m sorry. That’s the biggest thing. I f**ked up, and should have done better,” Bankman-Fried said in a lengthy Twitter thread.
The FTX founder went on to say that the exchange’s affiliated hedge fund, Alameda Research, would wind down trading while FTX focuses on boosting liquidity — “every penny” of which would go to helping make customers and investors whole, he said.
Alameda is at the heart of Bankman-Fried’s crypto empire, and questions about its financial stability kicked off a flurry of withdrawals over the weekend. On Sunday alone, Bankman-Fried said, FTX was hit with $5 billion in withdrawals.
The near-collapse of FTX, one of the largest cryptocurrency exchanges, has sent shockwaves throughout the crypto industry, which was already being battered by higher interest rates and recession fears.
I’m still up 400%+ on my initial investment. A couple years back I withdrew my full initial investment either through diversification of my crypto wallet holdings or through direct cash withdrawal. So I’m good. I’m riding.
I’m still up 400%+ on my initial investment. A couple years back I withdrew my full initial investment either through diversification of my crypto wallet holdings or through direct cash withdrawal. So I’m good. I’m riding.
I am not a financial advisor but have done a lot of investing over the last 45+ years. You are going to do what you feel is right, but if it was me I would pull half of what you have left and call that profit on your initial investment and leave the rest of the "house money" as the ride money.
I understand the thought of it as not being out money, and have done that myself from time to time, but if you look at it as sitting at the poker table, those chips in front of you IS your money.
Slide some of that off the table now. Profit isn't a dirty word. Take it. Increasing wealth is the name of the game, right? You aren't gaining wealth if you simply take your initial investment out of the pot.
Playing with house money doesn't mean you should lose your fundamentals and start making foolish bets.
If everybody had like minds, we would never learn.
I’m still up 400%+ on my initial investment. A couple years back I withdrew my full initial investment either through diversification of my crypto wallet holdings or through direct cash withdrawal. So I’m good. I’m riding.
I am not a financial advisor but have done a lot of investing over the last 45+ years. You are going to do what you feel is right, but if it was me I would pull half of what you have left and call that profit on your initial investment and leave the rest of the "house money" as the ride money.
I understand the thought of it as not being out money, and have done that myself from time to time, but if you look at it as sitting at the poker table, those chips in front of you IS your money.
Slide some of that off the table now. Profit isn't a dirty word. Take it. Increasing wealth is the name of the game, right? You aren't gaining wealth if you simply take your initial investment out of the pot.
Playing with house money doesn't mean you should lose your fundamentals and start making foolish bets.
haha I do that at the craps table all the time, pocket a black chip here and there. My buddy is always amazed at how I walk away with more than he does. I think it's a mental thing in gambling. Even though I have chips in my pocket, my wagers are based on the chips I visually see in front of me, the more I have the more I risk, the less I have the safer I bet.
We don't have to agree with each other, to respect each others opinion.
been using crypto.com app for a while, as far as the company its ran very well. as far as the crypto...i i dunno how regular people like us was putting their entire savings into crypto like that. and whats crazy is that my crypto port. is actually doing ok. earning good % on the crypto earn, dope rewards on the visa card and those spotify and netflix reimbursements are dope.
but that was literally a couple of years of me throwing money into the app that i would've used on weed or chipotle. throw away cash. people was treating that like a stock market though. crazy.
“To announce that there must be no criticism of the President, or that we are to stand by the President, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public.”
Agreed. I don’t gamble. Been to Vegas a bunch over the years. They’ve never even seen a nickel of mine it their slots. Crypto is my gamble. My fun money. As I stated earlier I’m not out any of my initial investment. So at this point it’s all house money. And while yes, that’s my money, it is still cash I’m willing to have in play. I just wish Ripple and the SEC would get on with a settlement. That’s where my major play lies now. So I wait for clarity…. and with it hopefully another bull run.
It’s going to take a 10+ billion dollar investment to bail Bitcoin out. And this could be considered criminal depending on who knew what when. Lots of people going to lose millions. Heads will roll.
A life is not important except in the impact it has on other lives. – Jackie Robinson
Sam Bankman-Fried steps down as FTX CEO as his crypto exchange files for bankruptcy
Sam Bankman-Fried’s cryptocurrency exchange FTX has filed for Chapter 11 bankruptcy protection in the U.S., according to a company statement posted on Twitter. Bankman-Fried has also stepped down as CEO and has been succeeded by John J. Ray III, though the outgoing chief will stay on to assist with the transition.
Approximately 130 additional affiliated companies are part of the proceedings, including Alameda Research, Bankman-Fried’s crypto trading firm, and FTX.us, the company’s U.S. subsidiary.
In the 23-page bankruptcy filing obtained by CNBC, FTX indicates it has more than 100,000 creditors, assets in the range of $10 billion to $50 billion, as well as liabilities in the range of $10 billion to $50 billion. Bankman-Fried also indicated he wishes to appoint Stephen Neal as the firm’s new chairman of the board.
CNBC reached out to Adam Landis, founding partner of Landis Rath & Cobb LLP, who filed the Chapter 11 proceedings on behalf of FTX. CNBC did not immediately hear back to our request for comment.
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” said the new FTX chief, Ray.
“The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness and transparency,” continued Ray.
He added that stakeholders should understand that events have been fast moving, that the new team is engaged only recently and that they should review the materials filed on the docket of the proceedings over the coming days for more information.
It caps off a tumultuous week for one of the biggest names in the sector.
In the space of days, FTX went from a $32 billion valuation to bankruptcy as liquidity dried up, customers demanded withdrawals and rival exchange Binance ripped up its nonbinding agreement to buy the company. FTX founder Bankman-Fried admitted on Thursday that he “f---ed up.”
Anthony Scaramucci, founder of SkyBridge Capital and short-time Trump communications director, flew to the Bahamas this week to help Bankman-Fried as an investor and friend. When Scaramucci got there, he says, it appeared beyond the point of a simple liquidity rescue. He said he didn’t see evidence of this mishandling when he and other investors first screened FTX as a potential business partner.
“Duped I guess is the right word, but I am very disappointed because I do like Sam,” Scaramucci said Friday morning on CNBC’s “Squawk Box.” “I don’t know what happened because I was not an insider at FTX.”
An FTX spokesperson did not immediately respond to CNBC’s request for comment on this story, including on Scaramucci’s remarks.
GameStop
is winding down its partnership with FTX, according to people familiar with the matter. Under the agreement, announced in September, GameStop sold FTX gift cards in select stores and while FTX promoted the retailer on its exchange.
The winding down of business agreements, like the one with GameStop, will likely continue following the FTX bankruptcy filing.
The Chapter 11 proceedings exclude the following subsidiaries: LedgerX LLC, FTX Digital Markets Ltd., FTX Australia Pty Ltd., and FTX Express Pay Ltd.
Agreed. I don’t gamble. Been to Vegas a bunch over the years. They’ve never even seen a nickel of mine it their slots. Crypto is my gamble. My fun money. As I stated earlier I’m not out any of my initial investment. So at this point it’s all house money. And while yes, that’s my money, it is still cash I’m willing to have in play. I just wish Ripple and the SEC would get on with a settlement. That’s where my major play lies now. So I wait for clarity…. and with it hopefully another bull run.
That's cool. That run may come. As I have said, I have done that myself. Probably more when I was more your age...I don't know your age but my perception is you are a lot younger than I am. I hope it works out.
If everybody had like minds, we would never learn.
Agreed. I don’t gamble. Been to Vegas a bunch over the years. They’ve never even seen a nickel of mine it their slots. Crypto is my gamble. My fun money. As I stated earlier I’m not out any of my initial investment. So at this point it’s all house money. And while yes, that’s my money, it is still cash I’m willing to have in play. I just wish Ripple and the SEC would get on with a settlement. That’s where my major play lies now. So I wait for clarity…. and with it hopefully another bull run.
That's cool. That run may come. As I have said, I have done that myself. Probably more when I was more your age...I don't know your age but my perception is you are a lot younger than I am. I hope it works out.
I am younger than you. I’m 50. I’m old enough to not sleep well so I’m often grumpy, but not quite the age where everything I don’t like becomes communism.
I’m still up 400%+ on my initial investment. A couple years back I withdrew my full initial investment either through diversification of my crypto wallet holdings or through direct cash withdrawal. So I’m good. I’m riding.
I should have got in earlier... I didn't put a ton in crypto but I'm down 80%
been using crypto.com app for a while, as far as the company its ran very well. as far as the crypto...i i dunno how regular people like us was putting their entire savings into crypto like that. and whats crazy is that my crypto port. is actually doing ok. earning good % on the crypto earn, dope rewards on the visa card and those spotify and netflix reimbursements are dope.
but that was literally a couple of years of me throwing money into the app that i would've used on weed or chipotle. throw away cash. people was treating that like a stock market though. crazy.
I agree... I put in some throw away money into Crypto..... just to play a bit but was ok if I lost it... which I've basically done at this point.... I hope it bounces back, but if it doesn't that's ok...
I’m still up 400%+ on my initial investment. A couple years back I withdrew my full initial investment either through diversification of my crypto wallet holdings or through direct cash withdrawal. So I’m good. I’m riding.
I should have got in earlier... I didn't put a ton in crypto but I'm down 80%
Hindsight…. I could have gone bigger. I had a chance to pull the trigger on BTC at $6G. I dipped my toe instead of going all in. Hindsight.
Back then buying it was a major ordeal. Sketchy. I was buying on Chinese Binance. Super sketch. It’s where I first started buying XRP for $0.20. A coupe of years went on with nothing really happening. Then it took off again. Thankfully I kept my keys and was able to move my coins to a safer place… Coinbase and Uphold. From there I diversified and pulled my initial buy in. There was plenty left over.
My next move is to move them all to a ledger. Keep my coins out of other’s hands. If Coinbase goes belly up, as an example, my coins are still mine.
Yeah, I remember hearing about bitcoin years ago, but could never really wrap my head around it (still can't)... for this year I'll probably focus on paying down some debt and buying some index funds as the stock market keeps dropping... probably no huge moves in 2023
Share By Ben Cousins, Editor at LinkedIn News Updated 55 minutes ago
At least $1 billion in client funds is missing from failed cryptocurrency exchange FTX after founder Sam Bankman-Fried secretly shifted $10 billion of their money to his trading company, Alameda Research, anonymous sources tell Reuters. One source says the missing amount could be as high as $2 billion. The development comes on the heels of an investigation into "abnormalities," after $473 million worth of cryptoassets were suspiciously taken from FTX wallets following the platform's Chapter 11 bankruptcy filing on Friday.
Cryptocurrencies, including Bitcoin, remained under pressure Monday following FTX's collapse. Bitcoin's monthly losses now sit at 22.5%. The NBA's Miami Heat terminated its relationship with FTX and is searching for a new arena partner.
Blocking those who argue to argue, eliminates the argument.
WOW- have you read your first few sentences- I don't gamble??? Vegas, Bitcoin- what??? If a company makes nothing, just sells a piece of metal??? says it's worth $5000, but really- face value is .20.....that isn't gambling? The world is really strange. JMHO, oil pumped thru pipe going to heat homes, turned into gas for cars, busses, etc and gives you steady dividend....THAT isn't gambling. Peace.
"You've never lived till you've almost died, life has a flavor the protected will never know" A vet or cop
I think you read into my statement more than you should have. I don’t gamble. I don’t go to Vegas and throw money down on tables. That said I took a gamble on Bitcoin when it was about $6G and Ethereum when it was about $300. I’m still up on both. I have some altcoins I’m down on but overall I’m up on my holdings. Currently my stock portfolio is down. Yes I earn dividends. But if I sold my holdings I’d be down on many of them. So, which is a gamble again?
The money I have in crypto is ‘fun money’. Some people go to Vegas. Some people go to France. Some people shove it in a shoebox under their bed. It’s ‘disposable’ income.
You do you. Don’t worry about what I do with my extra cash. Just know that Vegas and their kind won’t ever get a penny of mine. I’ll take my gambles elsewhere.
Yeah, I had a business partner around 06-07 that talked me into setting up a full-time mining box. Not a multi-GPU rig like today's miners use, just a dedicated PC. He ran it for roughly 6-7 months and we actually mined like 3+ bitcoin, but they were essentially worthless back then with a coin worth about $10 I believe. Well, a year later we stopped working together and our crypto wallet was on his PC. He specifically asked me if I wanted to open a wallet and split those coins we mined and my dumb ass told him "I don't see any reason why I would ever want a bitcoin wallet because I didn't think they would ever amount to anything. I was salty with myself when bitcoin hit values above 50K per coin, salty af. I wish I had fully understood their potential before giving away what later turns out to be worth $75K+...
But truth be told, I would have sold them when they hit $100 if I was paying more attention to the market. But in my mind, I equated them to sports trading cards without stars on them and felt they would always have lower value but there would be a ton of them and if you had enough, you might have something. And 3 in 7 months wasn't setting the world on fire in my book. Turns out, they are more like stocks and the amount in circulation is very limited. And later, after all the big miners established mining server farms dedicated to mining bitcoin, they simply started hammering the mining side, and 3 bitcoin in 7 months on an old dedicated PC became a pipe dream. Now, mining is dead, supposedly, so my whole bitcoin experience boils down to a snooze and lose for me because I didn't get it until it was too late to get in early and free, or almost free anyway.
I do think crypto will bounce back though because the decentralized cryptocurrency idea is never going to die unless it's legislated out of existence. And honestly, trading crypto is no different than any other stock, so even when the government finally does regulate it, I doubt it will be regulated out of existence.
Last edited by OldColdDawg; 11/19/2211:17 PM.
Your feelings and opinions do not add up to facts.
This will get you up to speed on crypto, arch. It's a quick explanation of all the important bits.
And I must have my dates wrong on when we mined because mining started in 09 and we did it shortly after it became a thing. Our partnership ended in 2011, so it had to have been in the 09-11 time frame. I could have sworn it was earlier than that.
Last edited by OldColdDawg; 11/20/2209:21 AM.
Your feelings and opinions do not add up to facts.
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