What happened
Over the last 24 hours, the price of the cryptocurrency FTX Token (FTT), the in-house digital currency of the large crypto exchange FTX, had fallen another 29% as of 5:03 p.m. ET today. Over the last seven days, the cryptocurrency has fallen more than 88%.
So what
What started as rumors about solvency issues earlier this week quickly turned into a run on the exchange and by Tuesday, FTX faced a full-scale liquidity crunch. For a short time, it looked like the rival exchange Binance would step in to purchase FTX, but the company walked away from the deal less than 24 hours later.
Today, FTX, along with its sister companies FTX.US and Alameda Research, filed for bankruptcy and its CEO Sam Bankman-Fried resigned from the company.
Bankman-Fried said in a tweet today:
I'm really sorry, again, that we ended up here. Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to [the companies]. Ultimately hopefully it can be better for customers.
This whole mess started when a CoinDesk report earlier this month revealed that Alameda, the crypto hedge fund owned by Bankman-Fried, had a big chunk of its assets tied up in FTX Token. This sparked all sorts of questions regarding whether Alameda had used the crypto as collateral and how much exposure FTX's balance sheet had to Alameda.
It then came to light that FTX had used a number of its assets and customer deposits to prop up Alameda after a number of its deals went awry, which ultimately led to the liquidity issues this week.
Now what
Obviously, with FTX facing bankruptcy I would under no circumstances purchase any FTX Token. The FTX debacle is certainly going to leave scars on the crypto industry and has shaken the faith of many crypto investors.
I would expect to see a good deal of investigations and further regulation come out of this event. FTX will also have to work through bankruptcy to try to pay what it still owes to customers, so there is likely a good deal left to play out.
