The Fall of FTX: A Timeline
The eventful week - leading to FTX sudden fall.
Before presenting the key moments in the tragic event, let’s begin with an overview of what FTX is and does (or did) and which main character is behind the failed business.
FTX is a cryptocurrency exchange company. This means that customers can trade digital currencies for other digital currency or traditional money, and vice versa. Well, to be precise customers could trade until recently. Now, what is shocking about FTX bankruptcy is that fact, just a couple of days ago it was one of the world’s largest exchanges (together with Binance, which is also a cryptocurrency exchange company). According to the New York Times, FTX and Binance were processing the majority of all crypto trades in the world.
The fall of FTX is therefore worrisome in multiple ways. On the one hand, the questions of contagion rises: How would the fall of a formerly stable crypto firm impact the crypto market and other crypto companies? On the other hand, how will regulators and investors react, especially those who have been sceptical about cryptocurrency?
Before answering and understanding those questions, let’s first get a clear understanding about what has happened. Moreover, it my take awhile to get enough information about the bigger questions.
The Beginning
CoinDesk, a crypto publication, reported on a leaked document, which showed that Alameda Research, the FTX-linked trading firm, held an unusually large amount of FTT tokens - FTX's native cryptocurrency token. However, Alameda Research and FTX are meant to be separate businesses.
Bank Run
The news about Alameda Research sparked a crisis of confidence, especially after Binance reported that it would sell its FTT tokens "due to recent revelations." Customers rushed to request withdrawals. This caused a liquidity crunch for FTX, as it lacked the money to fulfill requests.
Binance agrees to buy its rival FTX
Binance - the rival of FTX - agrees to step in to rescue FTX from a significant liquidity crunch. However, Binance also states that the agreement is non-binding and that it can pull out from the deal at any given time. The final decision will come after careful due diligence is made.
No Deal!
Just one day after tentatively agreeing to buy and help FTX out, Binance announces that it is no longer pursuing the deal. The decision was made after corporate due diligence and latest reports regarding mishandled customer funds as well as alleged US agency investigations.
Crypto Industry
The news about the fragility of the once so solid cryptocurrency exchange FTX, brought crisis of confidence to the crypto world as a whole - which has already been struggling in 2022. This also brings more pressure on other crypto exchanges to be more transparent about their assets. Meanwhile further attempts to rescue FTX fail.
The Chaotic Fall
The eventful week ends on Friday with the news, that FTX has filed for bankruptcy protection in the US. The filing also included the trading firm Alameda Research and more than 100 affiliated companies. It is not yet clear how big the contagion in the crypto market will be since FTX was massively connected to several players.
Questions
How could such a fall happen?
What will happen to FTX's customers?
What will happen to the crypto market?
What will regulators do?
Who will take responsibility?