By John G. Dew – 11.20.22
Cryptocurrency exchange FTX has collapsed. The stated, primary business of FTX is facilitating the exchange of cryptocurrency while charging customers fees for service.
Sam Bankman-Fried (SBF) owns FTX and Alameda Research (AR) – a trading firm. From Nov. 2 – 6, rumors claimed that over 1/3 of AR assets were comprised of the FTX token (FTT).
The primary competitor of FTX is Binance. After rumors began, Binance announced they would be selling all of their FTT holdings on the open market. AR offered to purchase the FTT at a premium; the offer was declined.
On Nov. 7, Binance announced a non-binding agreement for the purchase of FTX. On Nov. 8, Binance abandoned the purchase citing due diligence concerns.
A final fundraising attempt by SBF failed after a leaked balance sheet showed nearly $9b in liabilities with just over $1b in liquid assets. Attempted sale of the balance sheet’s “less liquid” assets -about $5.5b would have caused significant price erosion of those assets. $3.2b was listed as illiquid assets.”
On Nov. 11, FTX filed for chapter 11 bankruptcy.
The fallout from the FTX collapse has been widespread. Major financial players, high-profile FTX investors, and FTX clients have announced that their holdings are now worthless.
The FTX collapse has been utilized by political pundits and policy makers to call for tighter regulation in the cryptocurrency space. Fundamentally, cryptocurrency had no role in the FTX collapse. Poor corporate controls and standard financial practices are mostly to blame. What bank does not lend against its reserves or hold its own stock? US Banks currently have a reserve requirement of 0%.
SBF was the second-largest donor to the Democratic party, and FTX was engaged with the Ukrainian government to convert and deposit cryptocurrecny donations into The National Bank of Ukraine. This has led to speculation that US aid to Ukraine was being funneled through FTX to the Democratic party. There has yet to be any evidence of this relationship as of Nov. 20, 22.
Visual Capitalist “Visualized – FTX’s Leaked Balance Sheet” ValueWalk 11.15.22