The earthquake caused by the bankruptcy of the FTX cryptocurrency exchange continues to reverberate in the industry.
Major players are still trying to figure out how a company valued at $32 billion in February could have gone down in just days.
While awaiting the conclusions of the investigations by regulators in the United States and in the Bahamas, where FTX and its founder Sam Bankman-Fried are based, some crypto evangelists have begun to draw their first lessons from this resounding debacle.
For billionaire Michael Saylor, known to be one of the most fervent defenders of bitcoin (BTC), the bankruptcy symbolizes the bankruptcy of an actor who had transformed himself into a bank in the crypto industry.
For billionaire Michael Saylor, one of the main evangelists of bitcoin (BTC), the FTX scandal is very bad publicity for the king of cryptocurrencies.
"The failure of FTX & FTT represents the collapse of a corrupt crypto-bank fueled by an inflationary fiat crypto-currency," Saylor posted on Twitter on November 14. "#Bitcoin is an incorruptible, deflationary asset and ethical network offering property rights & freedom to billions of people."
'Expensive Ad'
The bitcoin evangelist adds that the FTX scandal is very bad publicity for the king of cryptocurrencies.
"The FTX collapse is an expensive ad for #Bitcoin," Saylor said. "Too many good ideas have been pursued by the #Crypto industry in an unethical, unsound, irresponsible fashion. The only viable future is registered digital assets trading on regulated digital exchanges."
Saylor fears that this scandal, in which many retail investors will lose their savings, will delay the widespread adoption of cryptocurrencies.
As a crypto exchange, FTX executed orders for their clients, taking their cash and buying cryptocurrencies on their behalf. FTX acted as a custodian, holding the clients’ crypto currencies.
FTX then used its clients’ crypto assets, through its sister company’s Alameda Research trading arm, to generate cash through borrowing or market making. The cash FTX borrowed was used to bail out other crypto institutions in the summer of 2022.
At the same time, FTX was using the cryptocurrency it was issuing, FTT, as collateral on its balance sheet. This represented a significant exposure, due to the concentration risk and the volatility of FTT.
Once this exposure came to light, clients, fearing an FTX collapse, rushed to liquidate their crypto positions and get their money back. Customers on Nov. 6 withdrew a record $5 billion in a run on the exchange. This led to the insolvency of FTX, since it did not have the crypto assets, now on loan or sold, to honor its clients’ sell orders.
The insolvency of FTX, which filed for Chapter 11 bankruptcy on Nov. 11, appears to have occurred when its founder Bankman-Fried reportedly transferred $10 billion of customer funds from FTX to his cryptocurrency trading platform Alameda Research, according to Reuters, which cites two sources that "held senior FTX positions until this week."
FTX faces a shortfall of $1.7 billion, one source told Reuters, while the other source said between $1 billion and $2 billion was missing.
Bankman-Fried, who resigned as CEO, was once hailed as the savior of the sector during the liquidity crisis of last summer. His company was valued at $32 billion in February.
