The COLLAPSE Of The FTX EMPIRE- What You Need To Know
SBF: From Riches TO RAGS
CZ sends a clear message with this case. Although, there are perhaps a few more interesting ideas we can harness from the demise of FTX.
Back in 2017, there was no FTX, Sam Bankman-Fried or SBF Alameda. At least not in the news, since Sam Bankman-Fried had only formed his squad of traders (Alameda Research), in November 2017, just a month before the end of the 2017 Crypto bull run.
Alameda was (until recently) a quantitative trading team with aggressive trading patterns and arbitrage, which evolved into a massively advertised exchange (FTX). The trading group profited by billions and eventually ended up bankrupt together with a dozen FTX-related companies.
FTX is now the last of a series of crypto-companies that collapsed in 2022.
Tera Luna, Celsius, and a few Venture Capitals like 3-Arrows were the beginning, and FTX will not be the last or the bigger one on this list.
The current crypto-run seems endless since all these custodial centralized spaces disrespected values and many newcomer investors (users of these platforms) supported them. All had the same pattern, Ponzi-like tokenization and vast abuse of users’ resources.
The FTX Balance Sheet
The FTX liquidity crunch was an accident waiting to happen.
A balance sheet rumor, although nobody has seen this Balance Sheet. We do not know if it is a balance sheet or something different, like a general ledger or perhaps a revised spreadsheet listing FTX and Alameda assets.
Indeed, this sheet might not even be a formal accounting balance sheet. Independent auditors will validate formal statements using accepted accounting models.
We can suspect that this particular FTX balance sheet was a non-formal temporary one that leaked or was only made accessible to Binance Research.
Yet, it was looking so bad that Binance pulled the trigger.
CZ publicized these fears on Twitter and caused the collapse of the FTX exchange.
Is Binance an independent auditor?
It is not, but Binance still had billions of dollars invested in FTT tokens. So, there was interest in Binance to collect data from FTX and Alameda to secure its investment.
However, through the few years, Binance exists as a financial entity, it had its own demons to face, as regulatory concerns were increasing.
Is Binance allowed to Tweet about the financial troubles of a competitor?
In any traditional business environment, no. Still, the cryptocurrency field is nasty. An industry where the law of the jungle prevails. Only the most powerful of the centralized entities survive and dominate with monopolization tendencies. Few get arrested for financial crimes and even less pay for their actions.
Yet, it seems Sam Bankman-Fried might be an exception here. He has no backing from anyone in the crypto industry as others had.
The worst the banking and financial establishment has to offer turned into crypto as custodians and centralized exchanges. Only three exchanges survive since the MtGox days, and we understand we cannot trust them either.
The size of Binance and its connections seem to overshadow those of FTX.
CZ destroyed the price of FTT tokens (the FTX native token), entombing FTX with a single tweet.
CZ Exercised His Power
An announcement about Binance selling FTT tokens would not minimize market impact.
CZ is sending a different message. This a message of a powerful entity called Binance, which will not play by the book to allow competition to reduce its market share. Binance will aggressively defend its current leading position (approximately 50% of trading before the collapse of FTX).
FTX and Bankman, at that moment, submitted to the violent waves of withdrawals unable to prevent the collapse of FTX, FTX US, and any of the rest companies related to Sam Bankman-Fried.
As we learn from social media, FTX and SBF Alameda performed various trades of FTT tokens to cover a void of bad trades and liquidity issues. It was going to implode with or without CZs tweet, although CZ accelerated the process.
FTT Token And FTX Hack
Following the negative publicity and the FTX troubles, the FTT token lost 99% of its value (since a year ago), and most exchanges stopped trading it.
FTX experienced a hack recently, with Kraken Exchange exposing an inside job and blocking the accounts of several FTX executives.
Adding more fuel to the fire, someone with access to the FTT token contract apparently minted new FTT tokens out of thin air, worth hundreds of millions of dollars, and tried to move them to exchanges.
What You Need To Know
To anyone new in the crypto industry, the FTX crisis might appear as an extreme and rare event, but not to an experienced cryptocurrency researcher.
These things are common in crypto. FTX did not surprise anyone with enough experience in the field.
The only approach anyone investing in crypto should have is to hold the private keys, as any centralized entity in the field presents a grave danger to your crypto.
The private key provides access to the cryptocurrencies. No one else can move or freeze your funds unless you relinquish that control.
This is the power of the cryptocurrency economic model.
Control the keys, control your funds and trust no one. Many have to learn this the hard way. FTX will not be the last exchange to go down.
It is better to control the access to our crypto and take some time to learn how to protect our digital wealth.
The risk anyone undertakes to trust third parties is the risk Satoshi removed with the launch of Bitcoin.
Sam was not a crypto OG, but a trader that used his expertise and brilliance to achieve unimaginable wealth. However, he had a limited understanding of operating a business and made false claims that FTX was safe, either out of ignorance or for strategic reasons, to borrow some time and consider his next steps.
All those fast-collapsing companies and funds entered the crypto space in about 2017, during the end of the previous bull market. And most of them are managed by individuals who ignore fundamentals.
CZ is not an exception.
He started his crypto career earlier, but until recently, his comments showed he failed to understand the core concept of cryptocurrency (P2P permissionless transactions). Thus Binance created a centralized PoS clone of Ethereum (BSC), which was not a unique concept either since plenty of Ethereum clones existed for years before BSC (Tron, Polygon).
Sam’s empire was not as stable as many in this field thought. Nobody cared, though, since so many celebrities advertised FTX. And various influencers on TV ads, or social and mainstream media trusting and advertising FTX.
A company that filed for bankruptcy with some executives on the run from authorities and SBF begging on Twitter for public forgiveness, fearing perhaps even worst.
Are FTX investors getting their money back?
It depends on the findings and results of the bankruptcy procedure and the liquidation process of FTX’s assets.
Liquidators will sell all FTX assets for USD, at a price lower than the current one, so we should also expect a turbulent market.
Investors should write off any FTX-related investment.
In Conclusion
Sam Bankman-Fried looks like one of those figureheads from the 2008 financial collapse.
He still has not realized the magnitude of his dangerous business decisions, not even after his empire crashed to the ground.
Sam was loved by the whole crypto industry and supported, having a hundred thousand likes in each Tweet while perceived as someone bringing exciting new services to the crypto industry.
At the end of the day, as the bear market drags prices of crypto-assets into a bottomless pit, Sam was only a passerby.
There’s a long list of individuals that reached the top but also lost too much later.
There will be more since the crypto exchanges and custodians practices include unsecured lending and frictional reserves systems.
Sadly, plenty of influential individuals in this field accept and even promote lending platforms, centralized exchanges, and custodian wallets.
Even some that supposedly promote and embrace Bitcoin ideals.
We have learned nothing all this time.
Cover Picture background at Pixabay
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sadly, my $USD 800, within only a single month in FTX