The value of cryptocurrencies rose in 2021 but began to decline in 2022, leading to the closure of some trading platforms. FTX seemed to be holding strong until news of an elaborate scam broke.
Cryptocurrency trading platform FTX has rapidly grown in popularity since its launch in 2019. However, FTX collapsed in November 2022.
Cryptocurrencies have become a popular tool for investing and sending payments to other people and merchants. The value of cryptocurrencies has risen rapidly in 2021, with Shiba Inu Coin, for example, rising by 45 million% this year.
One way to obtain cryptocurrency is to open an account on a digital exchange platform, allowing people to buy one coin and trade it for another. Through the trading platform, people can also exchange cryptocurrencies for cash or fiat currencies. FTX will remain one of these trading platforms until the end of 2022. Sam Bankman-Fried founded FTX in 2019. Customers began opening accounts on FTX to trade and buy cryptocurrencies, and top venture capital investors began to flock in. By January 2022, the company's market capitalization reached $32 billion.
However, this ends in November 2022. What initially appeared to be an accounting oversight turned into a major fraud, costing customers and investors billions of dollars. It was discovered that customer funds flowed to accounts controlled by Hong Kong-based cryptocurrency trading firm Alameda Research, rather than FTX. After this revelation, FTX began to unravel.
The FTX fraud case that shocked the world, everything you want to know is here!
The development of FTX
FTX is one of the largest digital currency trading platforms for buying and selling cryptocurrencies. Shortly after its founding, FTX quickly rose to dominate the market through high-profile acquisitions of struggling competitors such as Liquid Global, LedgerX, and Blockfolio. FTX has used aggressive marketing campaigns such as Super Bowl ads, celebrity endorsements and arena naming rights with the Miami Heat. The marketing campaigns promised that people could deposit money into these accounts and earn higher returns than at regular banks.
Cryptocurrencies began to boom in early 2021, with the price of Bitcoin rising from $10,000 to a peak of $64,000. Customers started to take notice, and venture capital groups invested nearly $2 billion in FTX.
What is a rate tax?
Cryptocurrency platforms often create their own tokens to attract new customers. As more people invest in and demand a digital token, its value will increase, so the platform may offer additional benefits. FTX created its own digital token, FTT, in May 2019. FTX also offers other benefits for purchasing FTT, such as discounts and NFT rewards.
The downfall of FTX
In late 2021 and early 2022, the price of Bitcoin began to fall significantly from its early 2021 highs, and other cryptocurrencies began to follow. Many major platforms began to shut down, but FTX continued to acquire competitors.
However, the rise of FTX
The collapse of FTX
In November 2022, FTX started on November 2 and ended on November 12, lasting 10 days. It started with CoinDesk articles and leaked balance sheets. Binance initially announced that it would be selling all FTT tokens due to mishandling and murky funds.
The value of FTT fell significantly, prompting FTT customers to withdraw funds from their accounts. However, the collapse of other cryptocurrency platforms, such as Celsius Network and Voyager Digital, has people worried about their investments.
FTX lost billions of dollars in this massive divestment. Bankman-Fried ordered Alameda Research to sell assets to pay for the withdrawals, and he also sought financing to close an estimated $8 billion gap between what is owed and what can be paid.
On November 8, FTX removed the online withdrawal option, preventing customers from withdrawing money from the platform, meaning hundreds of thousands of customers were unable to access their funds. When FTX was unable to pay the $8 billion shortfall, it had no choice but to file for bankruptcy. FTX collapsed due to poor fund management, lack of liquidity, and massive withdrawals. Binance announced it would acquire FTX to prevent a larger market crash, but quickly backed away from the deal as more news reports surfaced about the mishandling of customer funds.
Bankman-Fried used FTX funds to purchase personal luxury goods, fund elaborate advertising campaigns, and make political donations.
The FTX fraud case that shocked the world, everything you want to know is here!
Founder faces criminal charges and lawsuits
Authorities arrested Bankman-Fried on December 12, 2022, on multiple fraud charges against FTX. Bankman-Fried was indicted in U.S. District Court on eight criminal charges, including money laundering, wire fraud, campaign finance violations and securities fraud. Bankman-Fried was granted a $250 million bail, the largest bail in history.
As of January 2023, $5 billion in assets have been recovered in the form of cash and liquid assets. The total missing assets are estimated at $8 billion.
On November 15, 2022, FTX investors filed a class action lawsuit against FTX and its celebrity endorsements. The civil lawsuit alleges that FTX used "misrepresentations and deceptive practices." The lawsuit also accuses FTX of using a Ponzi scheme to misuse funds and transfer customer funds between entities.
FTX Debtor Report
On April 9, 2023, the FTX debtors released their first report outlining the failures of the FTX Group’s pre-bankruptcy management team. "FTX Group lacks appropriate management, governance and organizational structure," the report states.
Findings include security failures, such as private keys for mobile crypto assets often being left in unencrypted files, and unsecured crypto assets in hot wallets connected to the internet. It also points out the use of multiple
