As the crypto market continues to struggle, FTX files for bankruptcy: The downward trend of the crypto market is not anything new, but it does not seem to be stopping anytime soon. Now that FTX filed for bankruptcy, investors are facing new fears and returning to a defensive stance as they try to figure out what comes next.
Craig Erlam, a senior market analyst for foreign exchange market maker Oanda, said that the collapse and the accompanying uncertainty have become another damaging blow to the industry. “How damaging it will be will depend on what further details appear in the coming days but right now, prices remain under pressure and vulnerable to further sharp declines.”
CEO Sam Bankman-Fried stepped down: Alongside the news that FTX filed for bankruptcy was the resignation of the company’s CEO, Sam Bankman-Fried. While he will remain around to help with the transition, he is being succeeded by Enron turnaround veteran John J. Ray III.
- Sam Bankman-Fried’s net worth peaked at around $26 billion in spring, and it sat at nearly $16 billion earlier this week. However, by the time FTX filed for bankruptcy, he had lost his billionaire status, with his assets being reduced to zero.
FTX Bankruptcy Filing: FTX filed for Chapter 11 bankruptcy protection in the US, with the proceedings including around 130 additional affiliate companies. Those mentioned include Alameda Research and FTX US. Additionally, the filing indicated that the exchange has over 100,000 creditors, assets between $10 billion and $50 billion, and liabilities between $10 billion and $50 billion.
The new CEO at FTX, John J. Ray III, said, “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.”
He continued to say that the assets could only be “administered in an organized, joint process.” In addition, he assured everyone involved that the process would be diligent, thorough, and transparent.
The end of a week-long struggle: When FTX filed for bankruptcy, it did not do so as a first resort, with the company struggling for the entire week before the filing. A major part of that was a failed bailout deal with Binance, which originally signed a letter of intent to acquire the crypto exchange.
The Binance deal fell through after the company reviewed FTX’s structure and books. Binance said, “Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.” However, due diligence led to the company deciding against the acquisition, leaving FTX scrambling.
Sam Bankman-Fried continued attempting to raise liquidity as he reportedly talked to numerous players, but nothing went through, which ended with the eventual bankruptcy filing.
What it means for the industry: Aside from creating panic as people question what comes next, there are also plenty of concerns from regulators after FTX filed for bankruptcy. Nobody wants another sudden collapse, and many are looking at what happened.
Among the things under scrutiny are policies pushed by Sam Bankman-Fried as part of an influence campaign, which has now come under enormous pressure. That includes a crypto regulation bill, which, among other things, would give the CFTC oversight of crypto trading.
- Lobbyists said they do not expect the bill to get much traction this year, but it is a continued push by the government to regulate the industry.
- FTX is the latest major crypto player to go down due to the volatile market and questionable internal controls, which could potentially change how these issues are approached.
While the role of regulators in crypto is yet to be determined, the fall of a giant like FTX is certainly a cautionary tale. In such a volatile industry, the collapse of an empire can happen faster than you think.