The Fall of FTX

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     Within the last month, Bahamas-based cryptocurrency exchange, FTX filed for bankruptcy along with the resignation of chief executive Sam Bankman-Fried. The quick demise of the company has shocked the crypto world and left many wondering about the legitimacy of other cryptocurrency exchange platforms. 

    A significant cause of this quick downfall was a competitor's, Binance, withdrawal from a deal to purchase FTX.  Previously, Binance CEO Changpeng Zhao had announced that the cryptocurrency firm had reached a non-binding deal to buy FTX’s non-U.S. businesses for an undisclosed amount, allegedly rescuing the company from a liquidity crisis that Zhao foresaw. However, merely a day later Zhao pulled out from the deal and essentially announced that FTX was a lost cause. Following the suspect dismantling of this deal between FTX and Binance and the inevitable downfall of FTX, the US Department of Justice launched a full on probe against the company. According to one report, FTX crypto exchange saw $6 billion worth of withdrawals in 72 hours after Binance cancelled their purchase deal and the US launched a probe against FTX for trading violation.

    The main issue with this situation comes down to the illegitimacy of crypto in general. Although Bankman-Fried was scheming and committing fraud in some sense, the real issue comes down to the way crypto exchange platforms are regulated. Bankman-Fried was recklessly purchasing companies and spending money he did not have; all to put on a facade of major success. He was taking money from users of his platform, FTX, and transferring it to invest or even acquire other failing businesses. He dug himself further and further into a hole and now there seems to be no way for him to get out. Although he is now trying to act like he is putting all his efforts towards rescuing the money people lost, FTX is short about $8 billion and has no course of action to recover it. 

    This all is sure to build a stern distrust of crypto exchange in general. And maybe that is rightfully so. Crypto is extremely volatile and furthermore lies on top of the fact that virtual currency can be easily manipulated to appear in places it is not. Bankman-Fried could have possibly kept his scheme going a while longer if it were not for the swift action of Binance and the US government; but it seems as if no cryptocurrency exchange platform is ever 100% legit, and they will all eventually be brought to light. 

    The only solution to end the invalidness of crypto would be to sharpen the scope of regulation going forward. However, the connoisseurs of the crypto world take pride in the elusiveness of the digital currencies. Tightening regulations would surely prevent schemes like FTX's to develop, but it would also decrease the popularity and success of various crypto coins. Crypto exchange platforms would simply turn into digital banks, which practically no one wants. 

 



If you would like to learn more please access these links where I found my information:

www.nytimes.com

www.cnbc.com

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