For the past couple of years, a big name in technology has been cryptocurrency. Some popular ones like Bitcoin, Ethereum, and Dogecoin have all been in the market for nearly a decade now with fluctuating prices. FTX, a cryptocurrency exchange, emerged onto the scene as a major player operating as an exchange while having it’s own currency. FTX, short for Futures Exchange, quickly made it’s mark with sponsorships with Mercedes and its F1 team, NBA teams such as the Miami Heat, Golden State Warriors, and the Washington Wizards, Esports teams such as Furia and TSM in addition to Riot Games, and the MLB. FTX also signed major athletes to its brand such as Tom Brady, Steph Curry, Naomi Osaka, and Shohei Ohtani.
The Founding of FTX
Sam Bankman-Fried, the 30-year-old founder of FTX, was considered an upright entrepreneur and philanthropist for his desire to donate half of his wealth. The creation of FTX starts back in 2018 when SBF gained an interest in Bitcoin and began trading the cryptocurrency. He’d purchased Bitcoin in the US and sell it in Japan. With the profits made, SBF created his own cryptocurrency exchange in 2019, known as FTX. His primary focus was luring high-risk investors looking to place leveraged bets on cryptocurrencies. Venture capitalists flocked to the idea of FTX and shortly after was valued at $18 billion in 2021. As Isaac Newton once said “what goes up must come down,” however in this instance it was FTX as a company and not the apple Newton threw into the air.
How FTX hit the floor within the span of 10 days.
This all went downhill during the dates of November 2 to 11, 2022. On November 2, a leak of Alameda Research’s balance sheet was discovered by CoinDesk. The balance sheet speculated that FTX was printing tokens out of thin air. This report by CoinDesk highlighted potential leverage and solvency issues. On November 7, the crypto analytics company Nansen disclosed that over the past week over $451 million worth of stablecoin had been withdrawn from FTX. On November 8, Binance, a rival exchange, entered a letter of intent to buy FTX however on November 9, the deal would fall through. On November 10, SBF issued an apology on Twitter. Ultimately, on November 11, FTX filed for bankruptcy and over billions of dollars worth of crypto withdrawals were frozen alongside with the company. Throughout SBF’s reign in the crypto world, he attained a net worth just shy of $21 billion. Over the days of November 2 to 11, his net worth dropped by $16 billion. The demise of FTX? Not having enough assets in reserves to meet the demand of customers.
SBF would be arrested on December 12th in the Bahamas and extradited back to the US. 10 days later, a federal judge would grant him bond and he’d be out on a $250 million bond, the largest ever. On January 3, 2023, Sam Bankman-Fried plead not guilty to all criminal charges in a New York federal court.
The fall of a major player like FTX led to a major crash within the crypto bubble. This crash would lead to Bitcoin plummeting down to $16,000, first time since 2020.
Is Crypto a sham?
Five months before the demise of FTX, Bill Gates described cryptocurrencies and NFTs as a sham. Stating that the trend of the digital assets are based on the “greater fool theory”. The theory falls on the idea that people are able to sell overvalued assets to a “greater fool”, someone who is willing to purchase the asset at an even higher price. Gates states he prefers “old fashioned investing”. However, old fashioned investing into companies may not always be the most ideal either – see Enron Scandal. Personally, I believe cryptocurrencies will not succeed and it’s just a matter of when they all bust.
Sources
https://www.investopedia.com/what-went-wrong-with-ftx-6828447
https://decrypt.co/114975/crypto-sports-marketing-deals-crumbling-cancelled-failed-ftx
https://www.forbes.com/sites/forbesstaff/article/the-fall-of-ftx/?sh=4a2dba577d0c
https://fortune.com/2022/11/11/crypto-bubble-bitcoin-fifth-biggest-all-time-bofa-ftx/
https://www.npr.org/2022/11/19/1138018369/the-rise-and-fall-of-ftx
https://www.reuters.com/markets/currencies/rise-fall-crypto-exchange-ftx-2022-11-10/
https://www.cnn.com/2022/06/15/tech/bill-gates-crypto-nfts-comments/index.html
https://www.forbes.com/advisor/investing/cryptocurrency/top-crypto-scams/
Good timely post. We’ll spend a whole class session on Blockchain and Crypto (and discuss whether it is a sham). The short answer is that is both is an is not. The whole thing is built on trust. If that trust is misplaced, as in the case of FTX, it will indeed be a sham. If the trust is well placed (e.g. JPM coin), then the technology has a lot of potential.
This is a great post, Andy. The downfall of FTX was certainly unexpected, and FTX customers were deceived. FTX’s massive balance sheet gap will probably lead to many being out of luck regarding their assets, and I don’t think anyone understands what really happened here. Hopefully, investigators can track down these missing assets and return everything to its rightful owner. Your argument that all cryptocurrencies will eventually bust is supported by the FTX collapse, but is anything guaranteed in financial markets? The chart you included shows that even gold has experienced a historic crash. I am with you and will avoid investing any money in anything related to cryptocurrency, but I also feel it can not be written off yet. Ripple is a great example of a crypto success story. It has been around for a decade, and if you haven’t, I would highly recommend looking into it. Let me know what you think!
Hi Andy. Thank you for sharing this information. I don’t have much experience or knowledge regarding cryptocurrency, so I enjoyed getting to learn more about this topic. In addition, I also noticed the same thing as Matthew that even gold has experienced a historic crash. I would like to discuss in class the opinion that all cryptocurrencies will not succeed and that it’s all just a matter of when they bust and gain other people’s perspectives.
This was a really informative post Andy! I appreciate the time spent to tell us about FTX. I had heard about the whole story but never went in depth on the situation. Crypto seems to be a very contoversial topic and its interesting when thinking about “the greater fool theory”. I think this would be a good discussion for class and I appreciate this post informing me about the specifics of FTX’s downfall as well as crypto as well.
Hey Andy, great post! I actually read up on this a while back, and I was learning about Sam before his downfall. At first, I thought it was incredible with everything he was doing. Unfortunately, he got in over his head and the fall was just as big as the rise. I like how the images you used, especially the chart to help visualize things. I never got too much into Crypto, as I was a skeptic about if it would be a scam or not. Also, I worried that it was ahead of its time, and I didn’t want to roll those dice.
Hi Andy, amazing and super interesting post! I don’t know much about crypto, but it was nice hearing about one cryptocurrency (even though it fell). I can’t believe that the fall of FTX was only 10 days. I really enjoyed your inclusion of media, and It’s kind of funny on the graph when it says “SBF deletes ‘Assets are fine’ tweet”…clearly they were not fine haha. I also had no idea that FTX led to the Bitcoin falling so much, but now it makes sense!
From what I know, I agree with you that cryptocurrencies will not last forever. Don’t even get me started on NFTs…
Hi Andy, great topic choice for your blog! I am not very familiar with the crypto industry, so it was nice to read about FTX and its story as a crypto exchange. I found it very surprising how quickly FTX crashed in just 10 days. Even though I don’t know much about crypto, I agree that it is not something that will be around for a long period of time.
Hey Andy, I think there are 2 sides to the coin when it comes to cryptocurrency. Companies like Coinbase have proven to not be big scams. While FTX was, I think a ton of people saw the fall of FTX coming when they were trying to get their name and face with an entire push on marketing like their sponsorship with the MLB, Tomy Brady, and other facets. FTX and NFTs were probably a big reason the public lost trust in crypto but I think we will see a rise come again in the future. Great Post!