This week saw a market meltdown as one of the major players in the sector saw their empire completely disintegrate in only five days.
This past week, one of the most unexpected and terrible contractions of wealth in the history of finance occurred in the cryptocurrency sector. Sam Bankman-$16 Fried’s billion empire, which was created through his exchange FTX and his hedge fund Alameda Research, fell to zero in five days flat, bankrupting 130 associated firms along the way.
Of course, that was the only topic on Twitter. The most popular microblogging site in the world functioned as both a battleground and a bulletin board for the situation as it developed, serving as a crucial outlet for individuals to express their opinions on the subject.
Last Sunday, Binance CEO Changpeng Zhao said that he will liquidate all of their exchange’s FTT tokens. FTX’s native token is FTT.
Zhao explained his reasoning some hours later.
Customers began withdrawing cash from the exchange in large numbers as a result of the tweet, causing a bank run. Over the following 72 hours, $6 billion left FTX. On a normal day, the exchange handled “tens of millions” of withdrawals.
Withdrawals were halted on Tuesday as it became evident that FTX lacked the liquidity to manage the influx of withdrawal requests. Things then became even more interesting when Changpeng Zhao intervened to “save” the exchange.
Bankman-Fried also disclosed the bailout on his profile at the same time. Later in his thread, he was thanking his fortunate stars for having a friend like CZ.
Zhao posted something later that day that hinted to what would happen the next day. He appeared to be losing confidence.
Then on Wednesday, the unexpected happened:
Changpeng Zhao provided a long statement outlining his justifications for the u-turn. He emphasized that there was no “grand plan” behind any of his activities.
The next day, Bankman-Fried wrote a lengthy apologetic thread in which he made clear that he was looking for alternative ways to obtain the liquidity required to compensate all of the exchange’s depositors. He congratulated Zhao twenty tweets in.
With the announcement that FTX had filed for Chapter 11 bankruptcy, things came to a grim end on Friday. Alameda Research will also file for bankruptcy, along with the exchange’s American subsidiary FTX.US and over 130 related firms.
As of right now, CEO Bankman-Fried has resigned, and John J. Ray III, a seasoned bankruptcy attorney, will take over in his place. Ray once guided Enron through its bankruptcy process, drawing an appropriate comparison.
Shiv Shrivastava, CEO of DeFi project Palladium, observed a somber reminder of Bankman-crumbling Fried’s enterprise from his balcony later that day.
The sector reacts
Throughout the week, a number of cryptocurrency firms, including Coinbase, Circle, and Tether, denied any ties to the struggling FTX.
Brian Armstrong, the CEO of Coinbase, declared that his organization has no exposure to FTX or Alameda and no FTT coins.
Armstrong attributed FTX’s liquidity issues on dangerous business practices, such as conflicts of interest between intricately entwined businesses and misappropriation of client assets. Additionally, he said that a lack of regulatory certainty in the United States caused investors to turn to foreign exchanges like the FTX in the Bahamas.
Co-founder and CEO of stablecoin issuer Circle, Jeremy Allaire, denied having any exposure to FTX. He concurred with Armstrong and saw the crisis as a brief blip on the path of crypto’s acceptance and transformation into a useful rather than speculative asset.
Former Kraken exchange CEO Jesse Powell had some harsh things to say about Bankman-Fried and his venture capital backers.
The public should be aware that Bankman-Fried could have received assistance from regulators all along, according to Republican Tom Emmer.
Elon Musk, the CEO of Twitter, said that Bankman-Fried triggered his “BS radar.”
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