They seemed invincible! In 2021, FTX made more than $1 billion in revenue. More than one million users were using the company’s services to buy and sell crypto.
Two years later, all of the money has disappeared, and the CEO, Sam Bankman-Fried (SBF), faces criminal charges. The crypto crash of FTX is shaking the industry. If you want to make money off of crypto, you need to know about the FTX scandal.
Who is SBF, and what is FTX? How did the crypto crash start, and why did the company collapse in a few days? What is the future of FTX and SBF?
Answer these questions, and you can navigate through the most difficult times in the history of cryptocurrency. Here is your quick guide.
The Early Years of SBF and FTX
In 2017, SBF started his own trading firm called Alameda Research. Alameda was extremely successful, and Bankman-Fried owned 90% of the company by 2021. In 2018, Bankman-Fried began trading the company’s commodities in bitcoin.
He quickly became interested in crypto. In April 2019, he founded the Futures Exchange (FTX), which allows investors to purchase, sell, and trade in cryptos. FTX also had its own cryptocurrency, FTT.
SBF approached investors around the world and acquired billions of dollars in funding. By early 2022, FTX was valued at more than $30 billion. One major investor was Changpeng Zhao, a cryptocurrency executive who poured millions of dollars into FTX and FTT.
The Crypto Crash
Alameda Research did not close its doors once FTX started. Money from the company funded FTX’s launch, and Alameda was one of FTX’s largest traders.
By 2022, the majority of Alameda’s assets were in FTT. FTT sales slowed down during the summer, but many investors thought FTX and Alameda were healthy.
On November 2, CoinDesk published an article revealing the ties between FTX and Alameda. Investors in the companies began worrying about their financial health, as a drop in FTT would hurt both companies.
On November 7, Zhao announced that he would sell his FTT. This caused the price of FTT to plummet.
This in turn led many other investors to sell their holdings in FTT. On November 9, FTX stopped processing withdrawals and told its customers that it did not have liquidity. Many customers bought crypto mining insurance so they wouldn’t lose more money.
On November 10, The Wall Street Journal published an article claiming that Alameda owed FTX $10 billion. FTX had taken money traded on its exchange and given it to Alameda so the company could invest it, but many of Alameda’s investments failed. The article caused even more withdrawals from FTX.
On November 11, FTX filed for bankruptcy. SBF quit as CEO of FTX, and the government has launched investigations into what happened. Some investors have accused SBF of misusing company money, but it is not clear yet whether he has or not.
The Basics of the FTX Crypto Fraud
SBF founded FTX in 2019, using resources from his trading company, Alameda Research. FTX was initially successful, but FTX and Alameda secretly exchanged money and resources with each other.
In November, the news of Alameda’s financial woes and ties with FTX broke. Major investors pulled their money out of FTX, and the company cratered.
Investigators are examining the Alameda-FTX relationship and whether SBF broke any laws. FTX is going through bankruptcy proceedings that may close the company.
The crypto market is going through a downturn, but things may change. Read the latest news on cryptocurrency by following our coverage.