Earthquakes for the cryptosphere – 16.11.2022 at 10:40


(Photo: Pexels – Worldspectrum)

Early last November, an epic battle took place between Binance, the world’s leading cryptocurrency exchange, and FTX, its challenger, through their respective leaders. FTX has really been going down the drain recently and a buyout proposal has been issued by Binance. The fallout was not long in being felt, with major cryptocurrencies taking a heavy hit over the next couple of days. Bitcoin, the giant of the cryptosphere, fell by more than 10% during the day, other coins were affected even more, like Solana that lost more than 30% or exactly FTX that fell by more than 70%.

What were the reasons for this apocalyptic situation? How could it have had such an impact on the market? What to expect next?

FTT IN SEARCH OF ALAMEDA: THE BEGINNING OF THE NIGHTMARE

On November 2, CoinDesk media exposed a close connection between FTX and Alamada Research, the two companies of Sam Bankman-Fried (known as SBF). Indeed, according to a financial document said to have been seen by CoinDesk, Alamada Research’s assets as of June 30 of this year would consist of $3.66 billion in “unlocked FTT,” out of a total of $14.6 billion. Liabilities would show $292 million FTT, out of a total of $8 billion. The problem is that “FTT” is the token of exchange issued by the company FTX, suggesting that the SBF empire may have liquidity and bankruptcy problems.

Four days later, Alameda Research CEO Caroline Ellison addressed the situation, specifying that this report is only about a subset of [nos] legal entities”.

CZ INTERVENTION IN TWITTER AND THE FALL OF FTT

Changpeng Zhao (known as CZ), CEO of Binance, announced on November 7, in response to these revelations, that he had made the decision to sell his $2.1 billion stake in FTX (including stablecoins FTT and BUSD). considered particularly at risk. This announcement, made publicly on Twitter, was felt directly, sending the price of FTX’s native cryptocurrency down 30% overnight.

According to Bloomberg, FTX’s stablecoin holdings fell to $114 million on the same day from $394 million three days earlier.

Other tweets were then posted on the accounts of both CEOs, debating the credibility of FTX. SBF claimed in these tweets that they had no problem processing withdrawals and that the funds were safe.

FTX INVALIDITY AND CONSEQUENCES

Despite the SBF’s attempt to calm down, investors were not convinced. The following day, Tuesday, November 8, FTT continued to decline as pullbacks piled up on the FTX platform. The more time passed, the less withdrawals were processed. At the same time, the price of FTT continued to fall. These events have confirmed the fears of investors and the hope of seeing their funds one day has become increasingly faint for users.

FTX spoke later on Twitter, the platform announced that it had started Chapter 11 bankruptcy proceedings in the United States. The world’s number 2 exchange has gone under the US bankruptcy regime. The group then claimed more than 100,000 creditors with debts estimated at between $10 billion and $50 billion.

The bankruptcy concerns FTX.com and FTX.us while FTX’s Bahamian subsidiary is not included in the restructuring plan. Additionally, the platform’s CEO Sam Bankman-Fried officially announced his resignation on Friday, November 11. John J. Ray III has been named interim CEO until the story is resolved.

Therefore, many users have lost their entire wallet, withdrawals are blocked for them, either in the United States or in the European area. Indeed, as of last Friday, no more withdrawals from the platform appear to have been finalized. This decision would certainly come from the new management of FTX.

The partners, for their part, flee to avoid tarnishing their image with that of the exchange: Visa announces that it is ending the partnership regarding the crypto card; Mercedes, which had signed a deal to promote FTX in its F1 single-seat engines, announced it had suspended the deal and was continuing to monitor the situation closely. On the basketball side, the Miami Heat team also terminated the contract, abandoning the name “FTX Arena” for its stadium.

Descent into hell

FTX’s descent into hell continues even beyond its bankruptcy filing for the exchange platform. This one is indeed reporting that it has been hacked and several hundred million dollars have been stolen. Some media mention more than 600 million. The platform then came out saying its security had been compromised and advising against logging into the app or website.

For its part, Tether managed to blacklist $31.4 million related to FTX hacks (in the form of USDT), preventing hackers from using them. More news came to worsen the fate of the former CEO of FTX: he had indeed transferred 10 billion dollars of user funds without their knowledge to Alameda Research, and investigations show that between 1 and 2 billion would be withdrawn (in an unknown way) and therefore not even invested, making the situation even more critical.

On the other hand, the employees of the bankrupt exchange and those of Alameda Research were allegedly heavily influenced to deposit their capital in FTX, amid false promises and lies, leaving them in the same place as other users. Additionally, The Block reported that FTX has initiated over 10 real estate purchases in the Bahamas for $74 million.

The fate of SBF is still unknown, but the latest news is that he is in the Bahamas, where he has been questioned by the police and investigators from the Financial Crimes Unit have arrived to help investigate possible criminal activities. The CEO of Alameda Research will try to join Dubai, which does not have an extradition treaty with the United States.

THE TERRIBLE CONSEQUENCES

This series of events marking the downfall of the world’s second largest cryptocurrency exchange is of course not without consequences.

In the wake of the FTT token, the entire cryptosphere has been affected. Whether it is the liquidation of billions of assets on the platform, the withdrawal of investors during these events, or even confidence in these assets that has fallen to its lowest point, the cryptocurrency market has taken a huge hit, losing more than 25 % of its weight, or more than 250 billion dollars were smoked.

The consequences will certainly be felt in the long term: the trust of investors, institutions and, in general, the general public has been greatly affected and risks being extremely difficult to regain.

The image of the “crypto” universe has really taken time to build in the right direction, it still remains very controversial, especially among the older generations. Judged as dangerous, incomprehensible and especially abstract by many, the cryptosphere will have a hard time restoring its image after these recent incidents.

But that’s not all. From this effect comes another, affecting the market, its operation and the concept behind cryptocurrency: regulations.

The basic idea of ​​these currencies was precisely an idea of ​​total transparency: to be accessible to all, for all, by all, and not directed or controlled by various regulations and institutions. It is from this philosophy and this idea that all the innovations related to this ecosystem are derived.

AT THE END

It is also very clear that this “ideology” does not like the world of finance, which for years has been trying to undermine and control this cryptosphere like “traditional” investments under the guise of “security”. An event such as the collapse of FTX is a boon for these institutions: it opens the door to new regulations and laws in order to “protect investors” and thus maintain control over the market. This goes against all the principles and foundations of blockchain and risks disappointing many investors who truly believe in this technology, in addition to completely preventing the realization of what cryptocurrencies were really created for.

Finally, beyond the economic consequences, it is the investors who have been affected. A large number of people were affected by this disaster, many lost all their savings, de facto suffering a devastating psychological and moral impact. Trust in the various exchanges has weakened and the sad and famous saying “not your key, not your money” is making its case again.

Directed by Mathis Erba, Charles Dhennin with assistance from Marc Dagher

Article originally published in DT expert

www.dtexpert.com

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