The sudden collapse of FTX, the world’s third-largest cryptocurrency exchange, underlines how important it is for any investor to learn about the risks taken when money is parked with a lightly regulated firm. FTX and affiliate companies filed for bankruptcy Nov. 11. Sam Bankman-Fried resigned his position as CEO and was replaced by John J. Ray III, a lawyer who has worked on the bankruptcies of Enron, Nortel Networks and many other companies.
Bankman-Fried is staying on with FTX “to assist with an orderly transition,” according to a press release:
FTX, based in the Bahamas, held about $16 billion in customer assets but had lent about $10 billion of that to Alameda Research, a trading firm also run by Bankman-Fried and headquartered in Hong Kong, according to a Wall Street Journal report. Alameda, in turn, had lent out billions of dollars, with some secured by FTT, a cryptocurrency created by FTX, according to a Nov. 2 report from CoinDesk. The value of FTT crashed as FTX faced $5 billion in customer withdrawal requests last weekend, which left FTX facing an $8 billion shortfall, according to Bankman-Fried. Binance, the world’s largest crypto exchange, had said it was selling its $500 million in FTT based on reports of FTX’s loans to Alameda. In this week’s Distributed Ledger column, Frances Yue rounds up FTX’s collapse, rescue attempts and industry reaction. Weston Blasi summarizes FTX CEO Sam Bankman-Fried’s shocking claim that he was unaware of FTX’s leverage risk, including an apparent lack of basic financial controls. More coverage and differing opinions as this story develops: The rise and fall of Sam Bankman-Fried Lukas I. Alpert chronicles FTX and Alameda Research founder Sam Bankman-Fried’s rapid rise and the instant collapse of his businesses. More: Crypto billionaire Sam Bankman-Fried’s net worth could shrink by over $13 billionWhat does the crypto crash mean for financial markets’ health?
Riskier financial dominoes fall as excess liquidity dries up.
MarketWatch’s Need to Know column is an early …