What Happened To FTX?
A series of recent events and allegations about FTX and Mr Bankman-Fried caused panicked traders to pull $6bn out of FTX, leading to its collapse and bankruptcy. These included:
– In July 2021, Binance, an early investor in FTX, sold its stake in its rival for $2.1 billion worth of FTT, a token launched by FTX.
– A CoinDesk article on (Nov 2) alleged that FTX and its corporate sibling Alameda Research (also owned by Bankman-Fried) faced a liquidity crisis. This led to concerns that Alameda Research’s balance sheet was too heavily reliant on illiquid tokens (tokens that can’t be quickly and easily bought or sold), including FTX’s own FTT.
– One week later, FTX’s rival Binance announced that FTX had a liquidity crunch and had asked for its help. Binance then agreed on a rescue plan to buy the FTX cryptocurrency exchange (not including FTX’s U.S. division called ‘FTX US’) with two CEOs, “C.Z.” Zhao and Bankman-Fried, signing a non-binding letter of intent and saying that a due diligence process would soon be underway.
– The next day (Nov 9), Binance pulled out of its rescue plan deal following a “corporate due diligence” review which appeared to reveal issues in FTX’s financial situation. Binance said these were “beyond our control or ability to help.”
– Binance’s CEO, “C.Z.” Zhao, announced that he was selling all his holdings of FTX’s FTT “in a way that minimizes market impact.”
– FTX’s CEO Bankman-Fried denied rumours of insolvency, saying that “a competitor is trying to go after us with false rumours.” He also noted that “FTX is fine.”
– C.Z.’s announcement that he was selling off all his holdings of FTX’s FTT resulted in a fall in FTT’s price.
– Alameda’s CEO, Caroline Ellison, tweeted that Alameda (also owned by Bankman-Fried) would buy all Binance’s FTT tokens for $22 each to minimize the impact on prices.
– The Binance rescue plan caused a 10 per cent (plus) fall in the prices of Bitcoin and Etherium, wiping out more than $60 billion from the market.
– It was alleged that C.Z. may have deliberately created a liquidity crisis at FTX (which he denied) to enable him to buy one of his biggest competitors for a rock-bottom price.