Cryptocurrency exchange platform FTX experienced a liquidity crisis that led to the company’s bankruptcy and erased the fortune of Sam Bankman-Fried, its young billionaire founder.
FTX, which is headquartered in the Bahamas, was launched in 2019 and had accrued more than one million users by 2022. Users suddenly demanded $6 billion in withdrawals after an article published by CoinDesk revealed last week that the two arms of Bankman-Fried’s cryptocurrency empire, FTX and Alamada Research, had significant overlap on their balance sheets in the form of the cryptocurrency FTT, which FTX invented. Rival firm Binance, which had been planning to purchase FTX, announced that it would discharge all holdings in the coin and eventually reversed course on the acquisition.
“Every time a major player in an industry fails, retail consumers will suffer,” Binance said in a statement. “We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market. As regulatory frameworks are developed and as the industry continues to evolve toward greater decentralization, the ecosystem will grow stronger.”
Bankman-Fried, who is 30 years old, went from boasting a $15.6 billion net worth to having “no material wealth,” according to data from the Bloomberg Billionaires Index. The entrepreneur resigned on Friday as his company filed for bankruptcy. “I’m sorry. That’s the biggest thing,” the founder said on social media. “I f***ed up, and should have done better.”
Cryptocurrency, decentralized digital money that can be transferred between users’ virtual wallets, has been the subject of skepticism from regulators over the past several years. The price of FTT fell from $23.53 on Sunday to $2.61 on Friday, while the price of Bitcoin dropped more than 20% over the past five days, reaching a price of $16,691.70 as of Friday afternoon.
FTX had been valuated at more than $30 billion before the sudden liquidity crisis. Sequoia Capital, one of the leading venture capital firms in Silicon Valley, announced a $150 million loss due to the collapse in a letter to investors defending the company’s due diligence process.
“We are in the business of taking risk. Some investments will surprise to the upside, and some will surprise to the downside,” the letter explained. “We do not take this responsibility lightly and do extensive research and thorough diligence on every investment we make.”
A number of lawmakers announced renewed pushes to investigate the sector after FTX filed for bankruptcy. “The events that have transpired this week reinforce the clear need for greater federal oversight of the digital asset industry,” Sen. John Boozman (R-AR) remarked.
“The recent collapse of FTX is a loud warning bell that cryptocurrencies can fail, and just like we saw with over-the-counter derivatives that led to a financial crisis, these failures can have a ripple effect on consumers and other parts of our financial system,” Sen. Sherrod Brown (D-OH) said in a statement. “The cryptocurrency market’s continued turmoil is why we must think carefully about how to regulate cryptocurrencies and their role in our economy.”