The Inevitability of the Blockchain Era
Blockchain era and digital assets are becoming the new building blocks of the financial world
The cryptic 2022
As 2022 came to an end, the crypto world crashed along with the collapse of one of the biggest “cryptocurrency exchange and crypto hedge funds -FTX”. Although the crypto world is known to be a world full of twists and turns and drama, with fortunes touching skyscrapers and disappearing in seconds, the FTX collapse sent shock waves through every blockchain that exists on the web.FTX, once known as one of the “Blue-Chip Companies”, FTX was one of the most stabilized, well-capitalized companies that survived even when the rest of the crypto world had a rollercoaster ride. It was calm before the storm for FTX, as the leading news site specializing in bitcoin and cryptocurrencies, ‘CoinDesk’, came out with a report highlighting potential leverage and solvency issues related to FTX-affiliated quant trading firm Alameda Research.
It revealed that the latter had a $5 billion position in FTT, which was the original symbol of FTX. In early November 2022, the stock market and the companies in its orbit began a steep fall from grace. However, problems arose when Bahamas-based FTX and its FTX US affiliate had overlapping management teams but separate capital structures. It should be noted that US residents could only trade through FTX US. Considering the volatility in the crypto world, FTX and FTX US crashed due to lack of liquidity and mismanagement of funds, followed by large amount of withdrawals from investors.
The value of FTX plummeted, taking with it other cryptocurrencies such as Ethereum and Bitcoin down to two-year lows by November 9, 2021. This led Binance, the world’s largest crypto exchange to sell its entire position in FTT tokens – approximately 23 million FTT- tokens valued at around $529 million. Binance clarified that such a decision was made only due to the assessment of the risk management after the collapse of another crypto token, Terra in 2022.
Consequently, FTX began to face a liquidity crisis. Although Bankman-Fried tried to reassure FTX investors that its assets were stable, customers demanded $6 billion worth of withdrawals within days of the “CoinDesk” report. The value of FTT fell by more than 80% in two days.
FTX collapse
Bankman-Fried even tried to save FTX by reaching a non-binding agreement, where Binance would buy the non-US FTX for an undisclosed sum. Unfortunately, FTX had to meet its end, as Binance withdrew the deal when it canceled the deal after due diligence raised concerns about the mishandling of customer funds, among other things.
It eventually filed for bankruptcy on November 11, 2022, following a wave of customer withdrawals earlier in the month. Within hours of it filing for bankruptcy, FTX claimed it was hacked. The exchange noted “unauthorized transactions” that may have stolen close to $500 million in assets. The hacker continued to drain wallets for several days using what analysts called “on-chain spoofing.”
According to the bankruptcy filings, FTX had assets in the range of $10 billion to $50 billion and liabilities in the range of $10 billion to $50 billion.
Since the collapse, the cryptocurrency has seen a 26% increase in the past two months, which also includes a 22% increase in price. Rather, investment in Bitcoin has seen an increase, which some analysts note as “the market moving past the FTX debacle”. Even Roxanne Islam, Assistant Director of Research at VettaFi said that there has been some renewed interest in crypto since the FTX collapse.
Analysts worldwide, that crypto and other blockchain investments are only growing, and are resilient enough to make digital assets the mainstream products. Observing this, Rosie Rios thus noted, “Digital assets are becoming mainstream products.”
