What Happened To Crypto Giant FTX? A Detailed Summary Of What We Actually Know So Far

Key Takeaways

• FTX, a crypto exchange, went from being worth $32 billion to filing for bankruptcy in what many are calling the “Lehman Brothers Moment” for crypto.
• Sam Bankman-Fried, the founder of FTX and Alameda Research, became a prominent figure in the crypto space while becoming one of the wealthiest people by the age of 30.
• The collapse of FTX has shaken up the entire crypto space. This has led to Congress and the SEC investigating what happened. Here is a step-by-step breakdown of what happened.

The FTX meltdown shook the entire cryptocurrency space, which still had not recovered from the Luna disaster in May, and a long decline in value. Adding insult to injury, in the blink of an eye, FTX went from being worth some $32 billion to filing for bankruptcy, leaving many investors confused to say the least.

Let’s explore what happened to the crypto giant FTX, complete with a timeline and details to explain exactly what happened.

Who is FTX and Sam Bankman-Fried?

With mainstream celebrity endorsements and sponsorships in major sports, there’s a strong possibility that you heard about FTX or Sam Bankman-Fried at some point in the last few years. Sam Bankman-Fried, often referred to as SBF, is the 30-year-old founder of FTX, the crypto exchange. He amassed a net worth of $26.5 billion at the peak of his wealth.

With cryptocurrency investing becoming more widely accepted in the last few years, many folks turned to crypto exchanges to purchase different types of cryptocurrency, like bitcoin, ether, luna, solana, and matic, to name a few. As crypto became more popular, SBF and FTX did too.

SBF cofounded Alameda Research, a crypto hedge fund named after his hometown, in late 2017. SBF then created his own crypto exchange, FTX, in 2019 based on the success of Alameda. The exchange grew fast with high-profile acquisitions, a hefty marketing budget, and promises of high returns. Users were told that they could earn much higher yields with FTX than with other traditional banks.

The Rise of FTX

SBF became a celebrity in the crypto space as he became a kind of poster boy for crypto. He hired celebrities to endorse FTX, with prominent figures like Tom Brady, Stephen Curry, Shaquille O’Neal, and Larry David becoming ambassadors for the exchange. Kevin O’Leary recently admitted that he was paid $15 million to be a spokesperson for the exchange. In a round of funding in January of this year, FTX raised a whopping $400 million to bring the total funding up all the way to $2 billion and the valuation to $32 billion.

Miami Heat arena

It’s worth mentioning that FTX became so prominent that they purchased the rights to name the Miami Heat Arena the “FTX Arena.” FTX reportedly signed a 19-year deal to rename the Miami arena in June of 2021 for $135 million. At the time, some skeptics weren’t sure how a two-year-old company could sign such long-term deals. As one can imagine, the city and the team no longer wish to be associated with a disgraced crypto exchange.

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Timeline of FTX collapse

Here’s what we know to date.

November 2: Coindesk publishes a concerning article about FTX and Alameda Research.

The article went into detail on claims that Alameda Research’s main asset was FTT, the native FTX token. This was a concern because FTX was using FTT as collateral on the balance sheet. This meant that the assets were tied to a risky and volatile token, naturally leading to worries about the capital of FTX and Alameda.

FTT is the native token of the FTX network, similar to how the Ethereum network uses ether. Crypto platforms will create tokens that are unique to the network to offer perks to users. Binance has BNB, the Binance coin that’s used on the blockchain.

November 6: Binance sells FTT holdings.

Based on the Coindesk report, Binance, a rival exchange announced it was going to sell around $530 million worth of FTT. Billionaire Changpeng Zhao, the CEO of Binance, sent out a series of tweets to announce that Binance would be liquidating any remaining FTT tokens due to these recent revelations.

This caused the price of FTT tokens to drop as investors rushed to take their money out of FTX, figuring that this would be the next crypto company to collapse. FTX then couldn’t process these withdrawal requests as they reached an estimated $6 billion. This led to a liquidity crunch for FTX, which simply means they didn’t have the funds to fulfill the withdrawal requests. The $6 billion in withdrawals in 72 hours was enough for FTX to pause withdrawals. SBF tried to calm investors down by assuring everything was fine in a tweet that has since been deleted.

November 8: Binance announces agreement to buy FTX.

Binance announced that they had reached a non-binding agreement to purchase FTX to help with the liquidity crunch. However, once the due diligence was conducted, the deal fell through. Binance announced the very next day that due to the news of mishandling customer funds and an alleged U.S. agency investigation, they couldn’t go through with the acquisition of FTX.

The next few days were filled with panic and chaos as investors tried to figure out what was happening.

November 11: FTX files for bankruptcy with all of its subsidiaries.

The inevitable happened, and the company had to file for bankruptcy protection after a sudden collapse. This sent shockwaves across the entire cryptocurrency space and we’re still witnessing the fallout in real-time.

November 14: BlockFi suspends customer withdrawals.

Ever since the bankruptcy of FTX, many casualties have emerged. BlockFi was bailed out over the summer by SBF’s $400 million lifeline to stabilize the company. When FTX fell in November, BlockFi paused customer withdrawals due to its significant exposure to FTX. BlockFi eventually filed for bankruptcy on November 28, 2022, where they listed 100,000 creditors and liabilities between $1 billion and $10 billion.

Investigations are ongoing determine what happens next as there are suspicions that FTX broke the law by lending customer money to the trading firm Alameda Research, which SBF happens to own.

Why Did FTX collapse?

With the timeline out of the way, let’s summarize why FTX had such a dramatic fall. In just a few days, the cryptocurrency exchange went from a company with a peak valuation of $32 billion to filing for bankruptcy. The liquidity crunch had customers demanding withdrawals, and Binance abandoned the non-binding acquisition agreement they had with FTX. The FTX exchange had no choice but to file for bankruptcy on November 11, 2022.

There are many stories and even more questions coming out of this collapse. The fallout is ongoing, and Congress will seek answers as to how this could’ve happened. SBF has been speaking with the media against the wishes of his lawyers. SBF spoke live at The New York Times’s DealBook conference via video, where he took responsibility for the situation. SBF blamed the collapse on “huge management failures,” and bad accounting practices. We should hopefully be getting some more concrete answers shortly.

What’s Next For SBF and FTX?

Many casualties are coming out of this FTX meltdown since the exchange had connections and ties with many other platforms. Michael Saylor had strong words when he spoke to Yahoo Finance about the whole FTX saga. Saylor called SBF the “Jordan Belfort of the crypto era,” a negative remark since the former Wolf of Wall Street was outed as a fraud. Saylor has also argued that the crypto industry needs to grow up.

Class-action lawsuits from FTX investors

A class-action lawsuit filed against FTX also named some of the celebrities who endorsed the platform. This lawsuit alleges that U.S.-based customers suffered $11 billion in damages. The exchange is also being accused of targeting “unsophisticated investors” for its platform.

SBF will testify in front of Congress

SBF tweeted on Friday that he’s willing to testify on December 13 even though he can’t say much since he doesn’t have access to his personal and professional data yet. Against the advice of his lawyers, the former CEO of FTX has been conducting various media interviews in an attempt to try to explain what happened with the collapse of the crypto exchange. Even though SBF was initially reluctant to speak to Congress, Rep. Maxine Walters, the chair of the U.S. House Committee on Financial Services, announced that he would be participating.

The panel will investigate the situation with FTX as the crypto exchange went from being worth $32 billion to bankruptcy while leaving maybe over a million creditors with nothing to show for it.

According to a report from the Wall Street Journal, the Justice Department and the Securities and Exchange Commission have been looking into what happened with FTX. The Justice Department can prosecute criminal fraud, while the SEC can affect civil regulations. Many analysts believe that further regulation will be coming to the crypto space.

SBF arrested in The Bahamas

Just before this story was published, it was revealed that SBF had been arrested in the Bahamas on Monday evening and that his testimony was cancelled. The Attorney General of the Bahamas announced that the Department of Justice had filed criminal charges against the former CEO of FTX.

How Should You Be Investing?

This detailed collapse of what was once a highly successful crypto exchange will likely make the idea of investing in digital assets feel extremely risky. Investing in cryptocurrency is risky in the best of times, as digital assets are highly volatile.

If you’re looking to invest in the cryptocurrency space, you may want to consider our Emerging Tech Kit, help spread risk across the industry, in favor of investing in a single coin or company. Q.ai uses AI to allocate portfolio weights each week across four verticals: tech ETFs, large tech companies, and small tech companies.

You can activate Portfolio Protection at any time to help protect your gains and reduce your losses, no matter what industry you invest in.

Bottom Line

The situation with FTX is still being untangled, and there will be further investigations into this matter that we will continue reporting on. In the aftermath of the FTX collapse, it came out that the exchange had attempted to negotiate a $100 million sponsorship with Taylor Swift.

It’s difficult to fathom how a company can go from paying for the naming rights of an NBA arena to filing for bankruptcy the following year. There are more questions than answers as investors and government officials attempt to make sense of what happened with FTX. When something seems too good to be true, it almost always is.

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