FTX Files For Bankruptcy: A Bad Week For Crypto

It’s been a bad week. Maybe not for you, but for cryptocurrencies and traders after one of the largest cryptocurrency-trading platforms collapsed. And that platform is FTX.

Founded by MIT graduate Sam Bankman-Fried in 2018, FTX offered trading options like derivatives, volatility products, leveraged tokens, and more. However, the entire $32 Billion company would come crashing down in just over a week, filing for Chapter 11 bankruptcy just recently. And it was not because of FTX itself, but its token, known as FTT, and what that had to do with its sister company, Alameda Research.

Here is more about Sam Bankman-Fried, sometimes known by his initials SBF. The 30-year-old entrepreneur was the Chief Executive Officer of FTX, though he stepped down after his company’s downfall. Once known as the saviour of crypto, Bankman-Fried faces public criticism, while some want him arrested and imprisoned. Now knowing more about SBF, let’s get to the situation leading up to FTX’s collapse.

Bankman-Fried founded Alameda Research in 2017 and then created the crypto-trading platform FTX. Alameda Research provides liquidity in digital assets and crypto markets and is a quantitative cryptocurrency trading firm. And if you don’t know what cryptocurrencies are, don’t worry and always link them to one word: Blockchain.

The blockchain is what crypto is all about, and it has all the past transactions of this token encrypted into it, hopefully preventing theft. Common cryptocurrencies include Bitcoin, Ethereum, Tether, etc. And then there’s the native token of FTX mentioned before, FTT, that caused a mess. You see, it has long been quite controversial to many people involved in crypto that Sam Bankman-Fried is a large holder of his company FTX, and this could cause the two, FTX and Alameda Research, to be too closely involved. And then is the first domino which would end up causing a disastrous week for cryptocurrencies and FTX: A leak.

This leak, in the form of a report from CoinDesk, wasn’t directly about FTX but the sister company Alameda Research, which exposed the company had financially invested substantial amounts in FTT. As of June 30, the biggest single asset on Alameda Research’s balance sheet was “unlocked FTT.” That made investors question FTX’s solvency, with many frantically withdrawing money from FTX and ultimately forcing the company into a bailout, and then it filed for Chapter 11 bankruptcy. Many think that CEO Bankman-Fried misused customer funds and lent them to Alameda Research, which violates their own “term of service” that states such funds are not the property of FTX. Some think that SBF should be criminally liable as a result. So what is this kind of bankruptcy FTX filed for, and what could be the actual consequences of the company’s actions?

Chapter 11 bankruptcy, named after the section of the United States Bankruptcy Code it’s about, is also known as reorganization bankruptcy, meaning that the company would continue operating and reorganizing the debt payments gradually over a set time. In a Chapter 11 case, creditors also have a say on the debtor’s proposed new plan, though all proceedings must have required creditor approval and meet legal thresholds. And even though Chapter 11 is usually associated with bankrupt companies, individuals can still apply for it. So for FTX, they would continue trading and exchanging crypto on the platform and reorganizing and repaying customers.

That’s about FTX’s bankruptcy. What about the criminal charges? Sam Bankman-Fried is currently not in the United States but in the Bahamas, where FTX gets headquartered. And the reason FTX is based there is that the Bahamas don’t have high taxes. Despite this, the US is still proposing its investigation into FTX’s financial dealings and money usage, while Bahama officials have said they will investigate too. Charges against the company or SBF have yet to get announced, though if you ask my opinion, this case could take some time to proceed. It’s similar to the recent trial of Theranos founder Elizabeth Holmes that took many years from her company’s forced shutdown till she was convicted. So it’s safe to believe that Sam Bankman-Fried’s case will be like that if he ever gets charged.

Even though all odds are against him, SBF thinks he can help reverse his company’s situation. However, there are indeed missing funds needing to get accounted for, and a sorry to customers isn’t going to solve things.

Do you believe that FTX is indeed criminally liable? Even if so, what do you think are the chances of SBF fixing his company? There are still many unknown things about the downfall of FTX, and I guess we can only wait to see. But until then, remember to stay tuned and subscribe to not miss out on updates. That’s the end of today’s production, and thank you for reading.