Being almost impossible to fake thanks to encryption on a blockchain, cryptocurrencies are considered both secure investment vehicles and a trend among the tech savvy youth. At the same time fluctuations in crypto prices have raised concerns about its stability, prompting entrepreneurs such as Sam Bankman-Fried (SBF) to bail out crypto firms about to collapse. But now SBF’s own fortunes have come crashing down, after his crypto exchange FTX went bankrupt.
The rise before a crash
In the wild web of crypto, Bahamas-based FTX was the second largest exchange after Binance, with a valuation of $32 billion, and founder Sam Bankman-Fried was worth $17 billion.
He had started off in 2017 with Alameda Research that made money trading cryptocurrencies, shortly after cryptocurrency prices picked up pace.
SBF then created FTX as an exchange, earned a commission on every trade and also gave loans on interest to investors.
All along, SBF was also rescuing crypto exchanges such as BlockFi and Voyager, and venture capital fund Sequoia also expressed confidence that he will become a trillionaire.
Dark shadows behind the white knight
Leaked documents by Coindesk showed that FTX faces insolvency, and it was later found that it may not have cash to back up investor funds.
It’s rival first announced that it will sell all its holdings in FTT, which is the native crypto coin issued by FTX, but later moved to acquire the exchange.
This led to an 80 per cent slump in value for FTT, wiping out $2 billion and then crypto’s rising star SBF lost 94 per cent of his wealth.
Client wealth lost?
As of now Bankman-Fried is worth barely $1 billion, while Binance has backed out of the acquisition saying that FTX is beyond rescuing.
Apart from the crash, now reports are suggesting that $1 billion of client funds are missing from FTX, and that $10 billion was transferred secretly from the exchange to Bankman-Fried’s trading firm Alameda Research. So apart from a case of another crypto firm crashing because of instability, this development highlights the possibility of a scam.
In an ironic turn of events, the firm dealing in assets such as cryptocurrencies hailed by many as unregulated investment vehicles, is now seeking protection under the US bankruptcy code.
