EXCHANGE November 2022

The collapse of cryptocurrency giant FTX, everything you need to know

The collapse of cryptocurrency giant FTX has had major consequences for the financial and technological world. But what really happened, why did it happen, and what lessons can we learn?

Sam Bankman-Fried, the young prodigy behind FTX, had succeeded in turning his company into one of the most important in the industry. FTX offered a wide range of cryptocurrency services, from futures trading to digital currency exchange. Its success was largely due to the trust it had managed to gain from large investors and venture capital firms.

However, as FTX continued to grow, so did suspicions that something was wrong with the company. Some analysts were pointing out that FTX was overvalued and that its business model was not sustainable in the long term.

FTX's collapse finally came when it was discovered that the company had been involved in illegal market manipulation practices. Bankman-Fried had used its influence and wealth to attempt to control the price of various cryptocurrencies, which had led to a large number of investors losing their money.

The news of FTX's collapse rocked the financial and technology world. Many wondered how such a major company could have fallen so easily. But the collapse of FTX also had important political consequences.

It was discovered that Bankman-Fried had used its wealth to influence politics, donating millions of dollars to political groups and candidates. This had allowed Bankman-Fried to have a great deal of influence on government and political decisions affecting the cryptocurrency sector.

The fall of FTX has made it clear that the cryptocurrency world needs stricter regulation and oversight. The lack of regulation has allowed companies like FTX to operate outside the law and mislead investors.

However, there are also positive lessons we can learn from the collapse of FTX. The importance of transparency and accountability are two key lessons. Companies operating in the cryptocurrency sector need to be more transparent and accountable for their practices and decisions.

The collapse of FTX has undoubtedly been a blow to the financial and technology world. But it has also been an opportunity to reflect on the importance of regulation, transparency and accountability in the world of cryptocurrencies.

The events leading up to FTX's bankruptcy

It all started with the introduction of FTX's native token, FTT, in 2019. FTT quickly became one of the most popular and successful tokens in the crypto market, thanks in part to FTX's innovative strategy of using FTT to reduce trading fees. However, as FTX grew, so did the company's reliance on FTT.

In May 2022, FTX experienced a significant drop in the price of FTT, which plummeted from around $125 to less than $30 in just a few weeks. The decline in FTT's price coincided with a decline in trading volume on FTX, suggesting a decline in investor confidence in the exchange.

As the price of FTT fell, FTX faced a liquidity crisis. The company had borrowed a large amount of money to expand and offer new products, but did not have enough cash to pay its debts. In August 2022, FTX filed for bankruptcy and its founder, Sam Bankman-Fried, resigned.

The impact of FTX's bankruptcy was felt throughout the cryptocurrency and NFT market. FTT's price drop and FTX's bankruptcy negatively affected other cryptocurrency tokens and exchanges, including Binance, which sold all of its FTT holdings shortly after FTX's collapse. In addition, the FTX bankruptcy has led to increased government regulation of cryptocurrency exchanges, which may affect how these exchanges are operated and regulated in the future.

We could conclude that the FTX collapse was a reminder of the volatility and uncertainty in the crypto market. Over-reliance on a native token and lack of cash can lead to the bankruptcy of a cryptocurrency exchange, which can have implications for the entire market. It is important for investors and cryptocurrency exchanges to be aware of these risks and take steps to minimize them in the future.

Can a giant like Binance take advantage of a competitor's disgrace to make a quick profit regardless of the consequences?

The crypto community convulsed after it was revealed that Binance sold most of FTX's FTT tokens amidst the scandal, this behavior was perceived as a coup de grace that foretold collapse of the exchange and triggered bearish pressure on the market. The community wondered what other dirty tricks are hiding behind the facade of the crypto-industry?

What is certain is that Binance could have done this maneuver as a mechanism to protect its assets and customers because they were handling information that later came to light and opened a court case against FTX managers that we will explore in detail.

The secret story behind the FTX facade

The collapse of cryptocurrency exchange FTX in May 2022 has been the subject of much analysis and speculation. An article by Forbes Argentina has shed light on the possible cause behind this collapse: the alleged misconduct of FTX founder Sam Bankman-Fried.

According to the article, Sam Bankman-Fried and his team at Alameda Research would have used insider information to manipulate the price of cryptocurrencies for their own benefit. The story begins in 2017, when Alameda Research used its algorithms to buy large quantities of FTT tokens from FTX at low prices. Then, in May 2022, Alameda sold these tokens on the Binance exchange, which caused a significant drop in the FTT price of FTX. This in turn, generated a wave of investor selling and widespread panic in the market, which contributed to the collapse of FTX.

But the story does not end there. According to Forbes Argentina, Bankman-Fried and his team reportedly used this price drop to buy large quantities of FTT at low prices on FTX, in what is described as a "massive panic buy". Then, taking advantage of the widespread panic and falling FTT price, Alameda Research bought large quantities of FTT at low prices on other exchanges, then sold them at higher prices on FTX. This would have allowed them to make large profits in a short period of time.

This alleged manipulative and insider trading behavior has been described as "a macabre scheme" by Forbes Argentina, and has led many to question ethics and transparency in the world of cryptocurrencies and NFTs. As government regulators become increasingly involved in the regulation of cryptocurrency exchanges, these cases of alleged misconduct could have serious implications for the future of cryptocurrencies and their acceptance globally.

Link to article: forbesargentina.com/ftx-sam-bankman-fried-1

Sam Bankman-Fried and his connections to power

Another Forbes Argentina article notes that Sam Bankman-Fried has worked closely with the U.S. Securities and Exchange Commission (SEC), suggesting a close relationship with the country's top financial regulator. In fact, Bankman-Fried reportedly hired a former SEC lawyer to head regulatory compliance at his firm. In addition, FTX has raised millions of dollars from large venture capital firms, including Sequoia Capital and Coinbase Ventures, indicating a network of powerful connections and resources.

Also, the article highlights that Bankman-Fried has used his wealth to influence politics, donating millions of dollars to political groups and candidates. In fact, he is reported to have donated at least $5.2 million to Joe Biden's presidential campaign and other Democratic candidates in the 2020 election. This information suggests that Bankman-Fried has the ability to influence policy and regulatory decisions, which can be beneficial to his company and his industry.

Overall, these Bankman-Fried connections and relationships with the SEC, venture capital firms and politicians suggest a position of influence and power in the cryptocurrency and finance industry. However, they also raise questions about the transparency and ethics of his relationships and potential influence on regulatory and policy decision making affecting his firm and his industry in general.

Link to article: forbesargentina.com/ftx-sam-bankman-fried-2

FTX has been run by a gang of kids out of the Bahamas

The collapse of Sam Bankman-Fried's cryptocurrency empire has left the world in shock. But what few know is that the dark and secretive operation behind FTX was run by a gang of rich kids in a luxurious mansion in the Bahamas. How could it be that a group of privileged youngsters were responsible for handling billions of dollars in cryptocurrencies?

The answer may lie in the exclusive penthouse where Bankman-Fried, 30, lives with his inner circle of friends and colleagues. Many of them met at the prestigious University of Massachusetts, and others worked together at quantitative trading firm Jane Street. But what binds them together is a web of romantic relationships between them, including Caroline Ellison, the CEO of Alameda Research and a former partner of Bankman-Fried.

However, according to anonymous sources cited by the CoinDesk portal, the cryptocurrency wunderkind mansion is a nest of conflicts of interest, nepotism and lack of oversight. FTX and Alameda employees have spoken on condition of anonymity, denouncing the harassment and death threats they have received after the collapse of the cryptocurrency exchange. Were these young men overly ambitious and careless, or is there something darker behind the operation?

"Gary, Nishad and Sam control the code, the exchange's matching engine and the funds," said a source close to the matter. "If they moved or entered their own numbers, I'm not sure who would notice." And according to another source, "they'll do anything for each other," suggesting that the group's loyalty extends beyond personal relationships.

Even Bankman-Fried's father, a prominent Stanford law professor, is involved in the company, suggesting that the group's influence extends beyond the Bahamas and into Silicon Valley. And while employees are in the dark about recent events, one thing is certain: the FTX rich-boy gang has fallen, and the world is seeing the consequences.

Wang, Singh and Ellison also sit on the board of the Bankman-Fried FTX Foundation, the company's philanthropic arm. Several housemates, including Bankman-Fried and Ellison, are active in effective altruism, a movement that "aims to find the best ways to help others," possibly through philanthropy.

In the Bahamas, FTX and Alameda's offices are also located steps away in a coworking complex that also housed Solana developers and other cryptocurrency incubation projects.

As a conclusion it cannot be categorically stated that these individuals used philanthropy as a front to do dirty business. However, the proximity of FTX and Alameda's offices, the active participation in effective altruism, and the fact that board members are also members of the FTX Foundation, could raise questions about the relationship between philanthropy and business of these companies. In addition, the publication of tweets such as Bankman-Fried's, in which he suggests that stakeholders should take a close look at FTX's governance, could be interpreted as an attempt to mock people who follow the company's activities closely. In the absence of more information, it would be premature to make outright statements, but there are certainly aspects that could be subject to greater scrutiny and transparency.

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