FTX Crash: All You Need to Know About the Market's Turmoil

The FTX Crash has had major implications on the crypto market and beyond, creating a ripple effect that many investors are still struggling to navigate. On Nov 11 2022, the now-infamous energy giant Enron filed for Chapter 11 bankruptcy in a liquidation process that took decades to unfold - and on Dec 12, 2020 the same happened with major cryptocurrency exchange FTX. The complaint filed by exchanges commission SEC against CEO Sam Bankman-Fried alleged numerous criminal charges including wire fraud and defrauding investors.

FTX's crash was catastrophic, as it exposed some of the exchange's murky finances citing complete failure of corporate controls and a complete absence of trustworthy financial information. After the bankruptcy filing on Nov 17, Ray III exposed FTX's financial troubles, claiming that Bankman-Fried had been using customer funds as his personal piggy bank to make private investments - including real estate investments and political campaign donations - while hiding the truth from his customers.

The wide-reaching implications of FTX's crash have been devastating; its native token FTT has faced sinking prices since news hit of its financial troubles. Despite this grim outlook however, there is still hope for investors who were caught up in the FTX crash if they take advantage of all resources available to them for navigating through this difficult period in crypto markets.

On November 9th, 2020, FTXUS crashed due to a large volume of sell orders, rattling investors and sending the FTT plummeting, taking with it many crypto assets including Ethereum. The crash took prices for some coins to a two-year low. But what caused this FTX collapse, including BlockFi’s involvement?

Investors are now trying to piece together what happened on November 28th when prices were sent crashing downward. What were the key points that led to this event and how can investors ensure it doesn’t happen again? These are just some of the questions that need to be answered.

Now-defunct cryptocurrency exchange FTX, founded by Sam Bankman-Fried, experienced a crash from Nov. 2 to 8 following recent revelations about its balance sheet. On Nov. 11, the exchange issued its own token, FTT, becoming the fourth-largest crypto exchange on the market. The trouble began when Coindesk reported on Nov. 9 that Alameda Research, a crypto trading firm, had troubling information about FTX's balance sheet and compared it to Binance's stockpile of dollars worth of assets. Following Changpeng Zhao (CZ)’s tweet on Nov 6, suspicion grew as to why FTX didn't have the liquidity needed to back transactions and stay afloat while Bitcoin was dropping to a two-year low. Bankman-Fried announced on Nov 10 that moves weren't announced publicly until Nov 6 due to the rapid decline in prices - leading investors to lose billions across the crypto market since these moves aren't always made publically known. As suspicion grew regarding FTX not having enough liquidity to stay afloat, more investors pulled out their money and headed for rival exchanges such as Binance - where CZ announced on Nov 6 that his company had stockpiled funds in order to protect against future market shocks or crashes.

On November 8th, Bankman-Fried struck a non-binding letter of intent to acquire an exchange with other CEOs and signed it essentially promising to acquire the failing exchange. Shortly after, however, the larger market crash on Nov 8 caused FTX to halt all non-fiat customer withdrawals. Bankman-Fried then posted a series of apologies explaining FTXs liquidity issues. Binance withdrew their offer shortly after and on Nov 9 Zhao posted saying they wouldn’t be acquiring the exchange due to corporate due diligence and that news reports claiming mishandled customer funds and agency investigations had contributed to his decision. Bankman-Fried appeared to reference Zhao's influence in FTXs fall when he posted a cryptic post about not making assumptions about what had happened.

On Nov. 11, FTX announced voluntary Chapter 11 bankruptcy proceedings in the U.S. Bankruptcy Court for the Northern District of California, Alameda Division. Unlike Chapter 7 bankruptcy, this means that FTX can continue operations while undergoing restructuring. Subsequently, FTX temporarily froze withdrawals from its wallets and users were unable to access their funds on Nov 11 - a move that undermined earlier reassurances about security on the platform.

In addition to the bankruptcy announcement, Coindesk reported that an apparent hack had occurred on Nov 11 when hackers infiltrated FTX's support channel on instant-messaging service Telegram and deleted malware disguised as legitimate software from FTX's apps. A Twitter user also reported that hackers had accessed bank accounts linked with Plaid, a company which connects customer bank accounts to financial applications. Responding to public reports of unauthorized transactions and access to its products, FTX General Counsel Ryne Miller posted an update stating they would expedite moving remaining assets away from unauthorized transactions referring to it as an "apparent hack".

The aftermath of the ftx crash continues to unfold, as financial times have reported on ftxs balance sheet dated Nov 10. Easily sold entries including a criminal investigation into the based Coindesk reports of Bankman-Fried and his on-and-off romantic partners.

FTX employees interviewed by Circle knew that their entangled finances with Bankman-Fried’s painted a dire picture and so FTX's financials were filed with a Nov 17 court filing in bankruptcy court. Security controls for the digital assets and an emergency motion added to the FTX bankruptcy filing which was reported on Nov 17. Credible evidence from Bahamian regulators directed Bankman-Fried to gain unauthorized access to FTX funds, according to Bahamian government transfers which happened during this time period. A press release from The Securities Commission Bahamas appears to be dated Dec 12 when authorities in The Bahamas arrested Bankman-Fried for criminal charges including wire fraud and defrauding investors. Further, Bankman-Fried testified at a blistering hearing accessed on Jan 4 2023 by The House Financial Services Committee where CNBC reported that “FTX committed old fashioned embezzlement” says the CEO tells lawmakers. Dec 13 saw FTX CEO John Ray III testify before the House Committee and told lawmakers “there was no record-keeping whatsoever”. On Jan 3, 2021, The US Attorney's Office Southern District of New York announced guilty pleas from Alameda Research Chief Technology Officer Gary Wang who is also an FTX cofounder pleaded guilty to charges arising from defrauding FTXs customers and related crimes as noted by federal prosecutors working on the FTX case. Finally, Jan 3 saw Bankman-Fried appear in a New York courtroom where allegations means he will face criminal trial.

With the recent crash of FTX, many people are wondering what happened to its former CEO, Bankman-Fried. On Dec 22 2022, a federal judge decided to release Bankman-Fried from prison and allow him to stay with his law professor parents in the Northern California area in Palo Alto while he awaits his court hearing on Oct 2 2023. Bankman-Fried will be wearing an electronic monitoring bracelet until Jan 3 2023 when he is set to plead guilty to criminal charges brought by federal prosecutors.

The rise of cryptocurrency has been remarkable, with its recent events -- such as the FTX crash -- prompting increased regulatory scrutiny. Following a Twitter post in which Nov 11 Sen. Elizabeth Warren (D-Mass.) called for aggressive enforcement to protect consumers, it is clear that crypto regulation is on the horizon.

As a result, we can expect reserve requirements and international exchanges to be among the areas most impacted by regulation. While there are still many questions about how these regulations will ultimately shape the industry, one thing is certain: crypto regulation is here to stay and we must prepare for its effects.

The collapse of FTX has been an incredibly swift and tumultuous journey, beginning with the filing for bankruptcy in late 2020 which quickly led to the jailing of its CEOs for a variety of civil charges in the United States. This set off a chain reaction that would eventually lead to FTX's failure.

On November 6, the world's biggest crypto exchange, Binance, announced that it would sell its entire position of FTT tokens. This announcement came shortly after the FTX crash and shows that Binance is committed to risk management. Previously, Binance had acquired a large amount of Terra Luna crypto tokens earlier this year.

This sale of FTT tokens could have a big impact on the crypto market going forward. It will be interesting to see how other exchanges react and if they also decide to offload their FTT positions in an attempt to protect against further risk.

The day FTX, a popular crypto derivatives exchange, had a liquidity crisis, Bankman-Fried attempted to reassure FTX investors by searching for additional money. According to Coindesk's report, he had reached out to venture capitalists and rival Binance. Unfortunately, the FTT token fell and on Nov 8th, Binance announced a nonbinding agreement. This deal would have provided non-US business to FTX and prevented the world's largest cryptocurrency exchange from bailing on its close rival.

On November 9, Binance announced the cancellation of their deal to bail out FTX. This move followed a crash in the markets that hit FTX hard and left many customers wondering about the safety of their funds.

The initial agreement was for Binance to back FTX through corporate due diligence, but raised concerns during the process that led to the deal being called off. This decision has left those customers with assets on FTX unsure of what will happen next, as they wait to see if any future deals are made.

Nov 10th saw a major shakeup in the cryptocurrency world when the Bahamas Securities Regulator froze FTX Digital Markets, FTX's Bahamian subsidiary. This was due to the California Department of Financial Protection and Innovation announcing an investigation into FTX for possible violations of state law. CEO Sam Bankman-Fried apologized to customers over a liquidity crisis that arose due to insufficient funds to meet customer demands. He also noted that poor internal labeling caused users of FTX's non-US exchange to miscalculate leverage. In a thread on Twitter, Bankman-Fried acknowledged that this incident was disruptive and unacceptable.