FTX’s Collapse: Who Is the Culprit?

FTX’s Collapse: Who Is the Culprit?

ftx collapse

The market has been forced to watch the collapse of FTX in recent weeks. FTX was a global cryptocurrency exchange firm backed by the likes of Sequoia, and Greylock, among other big names in Venture Capital. FTX, Binance’s biggest competitor, went down uniquely.

Sam Bankman-FTX’s founder, rose to fame via his crypto hedge fund known as Alameda research. Bankman used the income from Alameda to fund FTX in its early stages. Just three years into the market, FTX has accumulated a ton of venture capital funding, stadium naming deals, and endorsements from pro athletes and capped it with a $32 billion valuation.

During that time, the State saw Bankman as the driving force needed for crypto regulation. He occasionally met with Gary Gensler and other Washington lobbyists to discuss various crypto policies. After bailing out crypto-lending companies such as BlockFi and Voyager, glory days seemed inventible for FTX.

FTX Bankruptcy to Affect Millions

Despite its previous achievements, FTX went insolvent because of risky crypto trades and investments with user money placed by the firm and its affiliates, unstable balance sheet records, and massive withdrawal of funds from the platform.

Just a few days into the saga, the firm had filed for bankruptcy for more than 130 entities, and a few hours later, the platform was allegedly hacked, and more than $1 billion of user funds was transferred to private crypto wallets. There were also rumours that FTX’s executives were fleeing to the Bahamas.

Users should be pointing fingers at venture capitalists and investors in FTX. The parties mentioned could not conduct legitimate due diligence or communicate with Sam Bankman. The probabilities of such financial destruction are very low, considering the number of intelligences involved.

The amount of venture capital invested in crypto has skyrocketed over the past few years. In 2017, the venture capital invested was less than a billion dollars compared to the $33 billion invested in 2021. However, these investments work in tight circles meaning that investors only use them to excite users and lure new participants. This enables their particular valuation to skyrocket.

The investors behind these tokens have total control over them, meaning that they have the power to produce more receipts at will or alter the token’s protocols. To rub salt in the wound, some have funded exchange platforms where their worthless tokens are being traded.

Worse, regulators have created a platform for this behaviour to thrive. The Securities and Exchange Commissioner-Gary Gensler, has done everything but offer retail investors protection. The collapse of FTX is another example that the SEC is putting more effort into controlling the crypto market other than developing solicitous policies.

The lack of collaboration between CFTC (Commodity Futures Trading Commission) has once again cost investors. Venture capitalists and private investors continue to fund the creation of unregistered cryptocurrencies that endanger users.

Alongside FTX, Luna, BlockFi, Three Arrows Capital, and Celsius have all faced insolvency issues this year. These disasters are happening under the noses of SEC and cryptocurrency regulators. The billion-dollar question is how FTX collapsed while its founder was so close to SEC and CFTC.

After the collapse of FTX, many users are left with a bit of a sour taste in their mouths. However, some investors have begun to see this as an opportunity to take FTX’s place in the market. There are currently several platforms that have appeared to cater for traders previously trading on FTX. Therefore, this is a turning point for the industry.

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.