The cryptocurrency industry — and the institutions and investors with billions wrapped up in it — are still coming to terms with the fallout from the collapse of FTX, once one of the largest crypto exchanges in the world.
In just the past week, the company has had a life preserver offered by a rival exchange ripped out from under it, locked clients out of attempts to cash out their crypto holdings, filed for bankruptcy, and had its CEO and founder resign — all before FTX announced its funds had been subject to “unauthorized transactions.”
Bitcoin lost more than a quarter of its value last week as the chaos unfolded, the latest fiasco in an already tumultuous year for cryptocurrencies.
Experts say the FTX story has “far-reaching” implications for the cryptocurrency industry and those with major stakes in the market, including some Canadian institutions.
Here’s what you need to know.
What is FTX and why did it file for bankruptcy?
FTX — an abbreviation of Futures Exchange — is a cryptocurrency trading firm co-founded in 2019 by Sam Bankman-Fried and Gary Wang. At one time, it had been among the largest in the world, with experts who spoke to Global News putting it at No. 2 behind rival Binance.
While the cryptocurrency space has faced immense volatility in the past, Genevieve Roch-Decter, CEO of financial media platform Grit Capital, says the collapse of FTX is the “worst” she’s ever seen in the industry.
“Effectively what happened over the last 72 hours is you had the second-largest cryptocurrency exchange on the planet collapse, file for bankruptcy and get potentially hacked,” Roch-Decter tells Global News. “So the ramifications here are far-reaching.”
Customers fled the exchange over fears about whether FTX had sufficient capital, and it agreed to sell itself to Binance. But the deal fell through while Binance’s due diligence on FTX’s balance sheet was still pending.
Roch-Decter says that Binance would have found a major “hole” in FTX’s finances and backed out of the deal as a result.
The rush of customers trying to withdraw their crypto from the exchange created what amounted to a “bank run,” she says, an instance wherein an institution doesn’t have enough liquid cash on hand to meet the surge of withdrawal demands.
FTX had valued its assets between US$10 billion to US$50 billion and listed more than 130 affiliated companies around the world, according to its bankruptcy filing.