Crypto collapse: What is going on with FTX?

16 Nov 2022

Image: © velirina/

With a sudden plummet in crypto assets, allegations of fraud and up to $2bn in customer funds potentially missing, the collapse of FTX has sent shockwaves through the crypto market.

The cryptocurrency industry has been left reeling after crypto exchange FTX fell into bankruptcy, with a large amount of customer funds reportedly missing.

The loss of this crypto exchange has caused significant fallout in the prices of digital currencies, with bitcoin and Ethereum taking a hit.

Recent bankruptcy filings suggest the exchange may have more than 1m creditors, which means this collapse could have a massive impact on crypto traders.

What is FTX?

FTX is a cryptocurrency exchange where people can buy and sell various cryptocurrencies. Other prominent crypto exchanges include Binance, Coinbase Exchange and Kraken.

FTX was founded in 2019 by entrepreneur Samuel Bankman-Fried, also known as SBF. He also co-founded a crypto-focused trading firm called Alameda in 2017.

SBF’s cryptocurrency exchange was very successful in the years after its launch. It reached a valuation of $18bn in a 2021 funding round, which saw backing from major tech investors such as SoftBank and Sequoia.

FTX had more than 1m users on its mobile and desktop platforms at its peak and made more than $1bn in revenue last year, according to 2022 statistics.

SBF’s personal wealth grew to more than $16bn.

What happened to FTX?

The issues surrounding FTX began at the start of November when a CoinDesk article claimed the balance sheet of Alameda held billions of dollars worth of FTX’s cryptocurrency, known as FTT.

CoinDesk said this was discovered in a private financial document and blurred the lines between the two businesses, as it indicated that FTT stock was being used as collateral for loans.

A few days after this report, Binance CEO Changpeng Zhao tweeted that his company was selling its FTT holdings because of “recent revelations that have come to light”. Binance’s holdings of FTT were worth around $500m.

These issues sparked a major exodus as FTX customers quickly tried to withdraw their FTT holdings, causing its value to plummet. FTX saw around $6bn of withdrawals within 72 hours, according to a message to staff seen by Reuters.

Binance was then in talks to acquire FTX to save it from the “significant liquidity crunch”, its CEO said on Twitter last week.

However, Binance tweeted on 9 November that the acquisition was not being pursued due to “news reports regarding mishandled customer funds and alleged US agency investigations”.

FTX announced on 11 November that it had filed for bankruptcy and that SBF had resigned as CEO.

What has happened with customers’ money?

The story around FTX has grown more complicated with new allegations surrounding the connection between the crypto exchange and Alameda.

SBF secretly transferred $10bn of customer funds from FTX to his trading company Alameda, according to two senior FTX sources speaking to Reuters.

These sources also claimed that a portion of these funds is now missing, with estimates between $1bn and $2bn.

FTX legal and finance teams also learned that SBF had implemented a “backdoor” into the exchange, which allowed him to alter financial records without alerting others, the two sources told Reuters. SBF has denied implementing any backdoor system.

Last week, a source told Reuters that the US Securities and Exchange Commission is investigating FTX’s handling of customer funds and its crypto-lending activities.

A US House committee said today (16 November) that it plans to hold a hearing next month to investigate the collapse of FTX.

The story is still ongoing and it is unclear exactly what has transpired between FTX and Alameda. SBF tweeted last week that he is “piecing together all of the details” and was “shocked” to see things unravel.

“I will, soon, write up a more complete post on the play by play, but I want to make sure that I get it right when I do,” SBF said.

A recent tweet by the FTX and Alameda founder also hinted that he plans to “restart” his work by raising liquidity.

What is the impact on the crypto industry?

The sudden loss of the FTX exchange, along with the allegations of fraud and missing customer funds, has had a significant impact on the global crypto industry.

Along with a drop in various cryptocurrency values and a potential 1m creditors that may not get their money back, the loss could also erode trust in the cryptocurrency industry as a whole.

If the allegations against SBF are proven correct, it could affect how lawmakers handle industry pleas around special regulatory treatment, Axios reports.

The crypto industry has had its series of knocks already this year, with both bitcoin and Ethereum hitting record low values.

In July, crypto lender Voyager Digital filed for bankruptcy amid “prolonged volatility and contagion” in the cryptocurrency market. That same month, a former investment manager for Celsius Network filed a lawsuit against the crypto lender, accusing the company of being a Ponzi scheme.

The EU has been looking to become a standard setter around crypto regulation. At the end of June, it provisionally agreed on new rules to put an end to “the Wild West of unregulated crypto”.

The European Commission is also planning to begin talks next year on whether a single EU tax regime is warranted for the cryptocurrency market, Politico reports.

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Leigh Mc Gowran is a journalist with Silicon Republic