This is your guide to one of the biggest crypto crashes.
- FTX is one of the world’s largest cryptocurrency exchanges and its founder Sam Bankman-Fried was considered the savior of the cryptocurrency industry.
- Both Bankman-Fried and FTX suffered one of the most spectacular collapses in history overnight.
Sam Bankman-Fried (better known as SBF) is the crypto market’s latest victim. After reaching a $3 trillion high in November 2021, the global cryptocurrency market capitalization, currently worth around $850 billion, has fallen more than 70%. In the process, numerous cryptocurrency platforms and funds have failed. And now, SBF’s $32 billion cryptocurrency exchange, FTX, has filed for bankruptcy on November 11, 2022, following suit. what happened?
Crypt White Knight
Sam Bankman-Fried, now 30, was born and raised in California. He started working in the investment industry after he graduated from MIT in 2014. In 2017, he founded Alameda Research, a cryptocurrency trading company. Later, in 2019, he founded FTX, a cryptocurrency exchange. These two entities accounted for the majority of his SBF assets, which at its peak amounted to $26 billion.
As the cryptocurrency market surged in 2021, so did Bankman-Fried’s fortune. His success seemed unstoppable. He achieved celebrity status and began to get heavily involved in politics.During the crypto winter of 2022, SBF was hailed as the savior of the crypto industry as it bailed out other fledgling crypto companies, including Robinhood. was foretold as
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FTX has quickly grown to become the third largest exchange in the world. Its valuation continues to climb and has raised over $2 billion in venture funding since its inception. His firm is backed by some of the world’s top private equity and hedge funds, including NFL legend Tom Brady, supermodel Gisele Bündchen, my neighbor seinfeld Co-creator Larry David, and NBA stars Stephen Curry and Shaquille O’Neal.
FTX Trouble Begins
Binance, the largest cryptocurrency exchange by volume and FTX competitor, was an early investor in FTX. His CEO of Binance, Changpeng Zhao, has decided to sell his stake in FTX to his SBF in 2021. Instead of receiving cash, Binance received $2.1 billion in BUSD (a fiat-backed stablecoin issued by Binance and Paxos) and in FTT (FTX’s own native cryptocurrency).
The first sign of trouble came on November 2, 2022, when CoinDesk published a report containing disturbing news about the financial health of Alameda and FTX. A few days later, Zhao said he would sell his FTT tokens worth $580 million. This caused the price of FTT to drop by more than 80% of his, and within days worried investors withdrew his $5 billion from the platform.
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In desperate need of cash, SBF turned to his main rival Binance for a loan. After initially agreeing to this on November 8th, Binance withdrew the trade the next day and FTX forced him to file for bankruptcy on November 11th. On the same day, SBF stepped down as his CEO and FTX suspended all cryptocurrency withdrawals. The damage spread quickly across the crypto market as many other crypto companies were exposed to his FTX and FTT. Bitcoin hits his two-year low since Fallout.
The story doesn’t stop there. Hackers stole over $400 million of his cryptocurrency from the company the day it declared bankruptcy. The collapse sparked a number of investigations by the SEC and the Department of Justice, and within a week, the Securities Commission in Bahamas, where FTX is based, took control of his bankrupt FTX.
SBF Prosecution and Arrest
On December 12, 2022, SBF was arrested in the Bahamas and charged with multiple offenses, including telecommunications, commodity and securities fraud. He has been accused of illegally using customer funds to help Alameda, lying to investors about the financial status of FTX and Alameda, and mismanaging his company.
After being extradited to the United States on December 22nd, SBF was released on a record $250 million bail. SBF has pleaded not guilty. FTX currently has over 1 million creditors, with the largest of his 50 owing him nearly $3.1 billion in debt. Customers are not yet able to withdraw funds.
So what can we learn from the rapid ups and downs of SBF and FTX bankruptcies? Cryptocurrency fraud is a real issue affecting investors and traders around the world. It is important to understand that unlike investing in stocks, the cryptocurrency industry is still relatively new and highly volatile. It is still largely unmonitored and relatively unregulated. If you want to invest in crypto, you should only invest what you can afford to lose.
One of the best tools to protect yourself is a non-custodial wallet. This means that platforms like FTX have no control over cryptocurrencies. Unfortunately, anyone who used a custodial wallet on FTX may not be able to get their money back. He has two types of non-custodial wallets: hot wallets and cold wallets.
Hot wallets are connected to the internet, such as via a phone or computer, while cold wallets are hardware devices that allow you to store your cryptocurrencies offline. Storing cryptocurrencies in a cold wallet makes them less vulnerable to hacking and online attacks. However, cold wallets are difficult to use and if you forget your security information, you may never be able to access your cryptocurrencies again.
Keep detailed records and download all your transactions and holdings. Unfortunately, FTX users cannot log in to access statements. You will need them for tax purposes and as evidence to get back what you have.
While there is no sure-fire way to protect yourself from cryptocurrency-related fraud, there are steps you can take to reduce your risk of becoming a victim. Be careful when trading with unknown parties or considering crypto-related investments. Cryptocurrency is still a new industry, so you should only invest the amount you can afford to lose. That way, if the platform fails like FTX does, you won’t lose your savings.