One of the most dramatic and rapid reductions in wealth in financial history occurred in the cryptocurrency market.
The unexpected spectacular collapse of cryptocurrency exchange FTX this week sent prices plummeting down across the board, just when the industry was beginning to assume Crypto Winter had passed.
CoinGecko data shows that the value of both Bitcoin (BTC) and Ethereum (ETH) have dropped by almost 20% during the previous week.
Bitcoin (BTC), the leading cryptocurrency, has reached a new all-time high of $16,872 on the cryptocurrency exchanges. This is the highest price Bitcoin has been since the beginning of its bull run in November 2020, when it was propelled by fears of a global epidemic.
Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has hit a new low of roughly $1,274 today, its lowest price since early July.
Solana (SOL) investors have suffered the most weekly loss (47%) among the top 50 cryptocurrencies. Price per share of SOL is $16.26 now.
Sam Bankman-Fried, CEO of FTX, also founded another cryptocurrency firm called Alameda Research, and he was one of Solana’s first backers. The scandalized hedge fund’s second-largest coin holding was SOL.
In general, drops in the tenth and twentieth percentiles were commonplace this week. Starting the weekend at 38 cents and $127 respectively, XRP and privacy coin Monero (XMR) both experienced similar losses to the two market leaders.
Dogecoin (DOGE) investors have also suffered heavy losses, down 31% to $0.084633, as have Avalanche (AVAX) investors, down 23% to $13.96 and Algorand (ALGO) investors, down 18% to 13 cents.
Complete collapse of FTX
No one expected this, but they should have.
Sam Bankman-Fried was the first industrial millionaire to open his wallet and offer bailouts left, right, and center at the beginning of the summer, when Terra’s collapse precipitated a wave of bankruptcies.
A priori, he had the financial resources to cover the cost.
In March, when his fortune was at its peak, Bankman-Fried was worth an astounding $26 billion. Forbes dubbed him “the richest self-made newbie in Forbes 400 history” and “the world’s richest 29-year-old” in the same article in October of last year. Fortune magazine even put the question on its cover, “Is this guy the next Warren Buffett?”
This week the picture began to break. After “recent disclosures” concerning FTX reportedly pushing “against other industry players behind their backs,” Binance CEO Changpeng Zhao announced he would move to liquidate his exchange’s entire holdings of FTT (FTT is FTX’s native token).
There was a mass exodus of FTX funds after Zhao’s tweet, as investors fled the exchange in droves. In just three days, FTX saw a massive $6 billion leave the exchange. To give some context, on a typical day the exchange processed withdrawals totalling “tens of millions.” Withdrawals were “essentially paused” as a result of the exchange’s liquidity issues, a pattern that has become all too common. Reuters reports that an anonymous source said the freeze order came down from the top.
Over the course of the week, all the FTT tokens were destroyed. It was roughly $25 on Sunday. These days, you can buy it for nearly a tenth of what you paid for it back then.
On Tuesday, things took an intriguing turn when Binance and FTX struck a non-binding deal to save the latter for an undisclosed sum. Aware of the “very volatile” nature of the scenario, Zhao specified that his trade “had the option to pull out of the deal at any time.” And that’s precisely what happened the next day. It is “beyond our abilities to help,” Zhao added of FTX.
It seems that the due diligence required to rekindle Zhao and Bankman-crypto Fried’s bromance was a stumbling block. Binance tweeted an explanation for the change of heart, saying, “the difficulties are beyond our control or ability to help” in light of “the newest press stories surrounding mishandled customer cash and reported US government investigations.”
Coinbase, Circle, Tether, and Maple Finance are just among of the crypto firms that have distanced themselves from the troubled FTX this week. However, the epidemic is likely to continue, just as it did on Terra.
Galaxy Digital, a provider of financial services with a focus on cryptocurrencies, disclosed $76.8 million in FTX exposure on Wednesday. CoinShares, a company that facilitates trading and investments in cryptocurrencies, reported the next day that it had $30.3 million worth of cryptocurrencies locked up in FTX, all of which it had been unable to access.
On Thursday, the Securities Commission of the Bahamas, where FTX is headquartered, issued an order to freeze the company’s assets, ushering in the concluding act of the FTX drama. The exchange’s registration to operate was halted by the Bahamian regulator, who then petitioned the Supreme Court to appoint a provisional liquidator.
FTX’s announcement of Chapter 11 bankruptcy on Friday put an end to the turmoil. Together, Alameda Research and FTX, the NYSE’s US arm. The United States, along with about 130 of its subsidiaries and affiliates, will be filing for bankruptcy.
Former CEO Bankman-Fried has stepped down, to be replaced by seasoned insolvency attorney John J. Ray III. For comparison, Ray also led Enron through its bankruptcy.
This week saw one of the quickest declines in value in the industry’s history. The extent of the damage will become more apparent in the following months.
This past Friday, the disgraced ex-CEO of FTX took to Twitter to say, “I’m extremely sorry, again.”
Original article posted by Tim Hakki on decrypt.com.