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FTX Goes Bankrupt With No Hope For A Bailout

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Landon Manning

In bankruptcy, likened to the sudden collapse of Lehman Brothers in the 2008 crash, FTX, one of the world’s largest cryptocurrency exchanges, plunged dramatically, losing billions of dollars and going bankrupt within days. Declared.

The fall of FTX was sudden, monumental and chaotic to the cryptocurrency world, where Bitcoin was inadvertently lumped together. Just a few months ago, FTX was heralded by the media as one of the major movers and shakers. bailed out other exchange,Of the world maximum Even investment banks entered into negotiations with the world governmentSo for many investors and observers, November 8th came as a terrible shock. concern Be prepared for a potential liquidity crisis. On November 11, his CEO at the time, Sam Bankman-Fried, stepped down and the company declared: bankruptcy. How does this happen? And what does that mean for Bitcoin’s future?

FTX’s troubles started on November 2nd data A disturbing relationship between two major Bankman-Fried companies, the FTX exchange and the Alameda Research trading company, has come to light. Alameda found $14.6 billion in various assets held in mostly illiquid altcoins, with more than $5.8 billion split between his FTT and “FTT collateral.” . FTT is a token issued by his FTX and used for trading on the platform. On the FTX website, they claim his FTT is “the backbone of his growing FTX ecosystem.”

The company spent a third of all exchange fees to buy more currency. This poses a problem: actually selling $1 million worth of his FTT would have a dramatic effect on its price, making FTT’s total market cap less than what Alameda was holding on its books. increase. So the relationship between FTX and Alameda could have been flooded with loans backed by these tokens. In the event of a real crunch like the one seen last week, users would not be able to withdraw their money from the platform.

The situation itself was enough to make many FTX users very nervous. The failure of exchanges means that customers who theoretically “owned” large amounts of assets on these platforms simply lose their assets if they go bankrupt. The bank’s good performance eroded his trust in FTX as a platform, and the devaluation of the FTT token also contributed to the bankruptcy of both companies. Binance co-founder and CEO Changpeng Zhao (aka “CZ”) announcement Binance plans to gradually liquidate its FTT holdings and these exact events are unfolding.

Next time November 8th bomb REMOVED: Binance’s non-binding letter to purchase FTX to ensure solvency and liquidity, even though Binance knew it could reverse this transaction at any time during the discovery period. has been sent.The exact details of the discovery of this document are still unknown, but CZ again took to Twitter. director Two pieces of advice: “Don’t use the tokens you create as collateral” and “Don’t borrow if you’re running a crypto business. Don’t use your capital ‘efficiently’. Stock up a lot. ”

next”sadthe transaction will be Confirmed Dead on arrival.As regulators grow i doubt it And the market smelled of blood, and FTX’s last hopes of survival were dashed.

FTX was completed in 2 days. CZ compared We apply this event to the 2008 financial crisis as a “perhaps accurate analogy”. If one of the largest exchanges were to be demolished in the blink of an eye, it could spell trouble for other exchanges and the industry as a whole. Bitcoin valuations have already dropped thousands of dollars as a generalized fear of being left with worthless tokens and altcoins sweeps users around the world.Still, despite comparisons to the 2008 Crash who created bitcointhe greatest ray of hope may lie in the differences between Bitcoin and finance, especially when it comes to bailouts.

In the traditional stock market, a series of bank failures eventually led to the US federal government bailing out private banks, which more or less landed on the backs of US taxpayers. But Bitcoin is trustless, stateless and decentralized. If a company is on the brink of bankruptcy and no other company is trying to bail it out, no one will come to the rescue of a bad person or a company with bad business practices. Instead, the industry will be hit hard as leverage is washed out of the system and better businesses fill the void.

Bitcoin has survived mass crashes and bear markets. This is what gave the community such lasting resilience. Except for the Bitcoiners themselves, no one comes to save Bitcoin. Where will the market bottom be and how long will it last? How high will the next bull market go when the community is rebuilt and reorganized? Questions like these are impossible to answer, but There is good reason to believe that Bitcoin and its ironclad fundamentals can survive and thrive despite this setback.

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.

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