The size, scope of the FTX failure becomes clearer as users fear the worst

NEW YORK (AP) – Just days after the third-largest crypto exchange collapsed, the public is starting to get a sense of how complicated the FTX bankruptcy case can be. Other cryptocurrency companies are failing due to the unraveling of FTX, events reminiscent of the domino crashes of the 2008 financial crisis.

Users were left frustrated in the dark Tuesday about when they might get their funds back, if at all, directing much of their anger towards FTX founder and CEO Sam Bankman-Fried.

In a court filing, FTX’s attorneys said there were already more than 100,000 claims against the company and estimated that figure could grow to more than 1 million, most of them clients, once the case is complete. The court ordered FTX to provide at least a list of the company’s 50 largest creditors by Nov. 18.

Lawyers said the company is in contact with the Justice Department, the Securities and Exchange Commission, the Commodity Futures Trading Commission and dozens of other state, federal and international authorities, confirming previous reports. that the US government is investigating the possibility that Bankman-Fried and his lieutenants violated US securities law.

FTX filed for bankruptcy protection on Friday, sending tsunami-like waves through the cryptocurrency sector, which has seen its fair share of volatility and turmoil this year, including a sharp drop in the price of bitcoin and other digital assets. For some, the events are reminiscent of the failures of Wall Street firms during the 2008 financial crisis, especially now that seemingly healthy firms like FTX are failing.

The Wall Street Journal reported that BlockFi, which halted withdrawals over the weekend following the FTX bust, is now actively considering bankruptcy. and plans to lay off its staff. In previous public comments, BlockFi management clarified that FTX’s bankruptcy had prompted the company to go out of business. FTX had provided financial aid to BlockFi this summer, including a $400 million credit line backed by its own balance sheet.

“We are shocked and dismayed by the news regarding FTX and Alameda,” BlockFi said Saturday, referring to FTX and Bankman-Fried’s hedge fund, Alameda Research. “Given the lack of clarity on the status of, FTX US and Alameda, we are unable to operate as usual.”

Another cryptocurrency firm, cryptocurrency lending firm SALT Blockchain, also appeared to be on the verge of bankruptcy. The Bnk to the Future company withdrew from the deal buy SALT, citing its exposure to FTX. In the tweets, the CEO of SALT Shawn Oren he said he was “fully engaged still recovering from the damage as a victim”.

In a sign of how fearful investors are that the cascading effects could cause long-term damage, cryptocurrency exchange Binance has proposed the creation of a bailout fund this would save otherwise healthy crypto firms from bankruptcy. Binance founder and CEO Changpeng Zhao actually outlined the possibility of a cryptocurrency-like central bank or deposit insurance pool acting as a lender of last resort to prevent healthy companies from going out of business.

Meanwhile, FTX users have complained about their losses in Telegram chat groups for traders who have used the FTX exchange, writing that they have lost access to amounts ranging from thousands to millions of dollars.

Some have asked for information. Others speculated about the likelihood of recovering their funds, while others advised them to accept their investments were gone.

The moderators of one group have been posting intermittently, saying things like “No death threats please.” They wrote that they had no information on Bankman-Fried’s whereabouts or what would happen to his companies.

“No news,” a moderator posted.

Many of the FTX users named Bankman-Fried as responsible, punning his name as “Sam Bankrun-Fried” and demanding that he be prosecuted.

Tuesday the a support account for FTX US responded to posts on Twitter from people asking about their funds and invited people to message their Twitter account for assistance.

Mohit Sorout, 30, said he lost access to 95% of the value of his cryptocurrency holdings when FTX shut down its services last week, post on Twitter“Pain is f(asterisk)(asterisk)(asterisk)ing real.”

An electrical engineer based between New Delhi and Dubai, he started trading in 2017 and left his job in 2018 to pursue cryptocurrency trading full-time. Together with a business partner, he built a custom algorithm and turned a couple thousand dollar investment into many times that amount, even though he didn’t want to reveal the value of his holdings when he lost access to them. .

It’s unclear what will happen to funds from retail investors like Sorout, which are locked inside the FTX ecosystem. His requests to withdraw the funds were not honored last week and now he cannot even access the exchange, he said on Monday.

Sorout didn’t intend to keep all of his investments on one platform, he said, but the tools FTX had created for traders like him were very effective and his algorithm worked well there. He also trusted Bankman-Fried in part due to his high profile.

“The problem was the founder, who is donating eight figures into presidential campaigns, meeting with top bureaucrats, sponsoring chess tournaments, he’s out there sponsoring stadiums,” Sorout said. “You really don’t expect a company that big, especially the CEO of that company, to defraud his customers, you know?”


Leave a Reply

%d bloggers like this: