Results of 2022: the largest exchange crash in the history of cryptocurrencies – how FTX went bankrupt

ftx 2022

In November, FTX was officially declared insolvent. The efforts of exchange founder Sam Bankman-Fried to save the company proved futile. After the unsuccessful takeover of Binance, millions of users said goodbye to their deposits on the cryptocurrency exchange. As the company announced in early November, a bankruptcy filing has been filed. The bankruptcy also affects Alameda Research and FTX.US, which has always been considered a separate division. A total of 130 subsidiaries are affected, which are consolidated in the “FTX Group”.

And it all started well. The growth of the FTX cryptocurrency exchange has been meteoric. Not only did the parent company reach a valuation of $25 billion in 2021, the FTX.US subsidiary, which was launched specifically for the US regulated market, was valued at $8 billion before the collapse of the Bankman-Fried business empire. The trigger for this was a $400 million funding round, which caused prominent investors to step up.

Declaration of war between Coinbase and Binance

“As legislators and regulators continue to develop the U.S. regulatory framework for digital assets, we expect cryptocurrencies to play a much more important role in the broader financial landscape in 2022. We look forward to continuing to work with them and are confident that FTX.US will become the leading regulated cryptocurrency and derivatives exchange in the United States,” suggested Brett Harrison, president of FTX.US, naively.

It was a clear challenge to Coinbase, which at the time was well ahead of FTX.US in terms of trading volume. But the potential for FTX was great, even if Coinbase was significantly more powerful in terms of valuation and valued at $50 billion. But with $25 billion in the main company and $8 billion in a U.S. subsidiary, FTX was moving quickly and steadily to new heights. By focusing on compliance, the exchange also wanted to stand out from Binance. This was a key mistake by Bankman-Fried. Competitors do not forgive such chutzpah on the part of new players.

But until the fall, nothing foretold tragedy. In expanding its product portfolio FTX offered many interesting projects. A separate NFT market was launched, and the takeover of LedgerX was designed to expand the range of derivatives and be able to offer other financial products in the U.S. market in addition to cryptocurrency. All this was accompanied by huge marketing budgets to bring the brand to the consciousness of American consumers (especially young men), primarily through sponsorship of sports and games.

FTT token price at the end of 2022. Source:

FTX Absorptions

Celsius, Three Arrows Capital or Nuri: after a strong 2021, these companies had to declare bankruptcy in 2022. Another cryptocurrency company that did not make it through the bear market was Voyager. This Canadian-based cryptocurrency lending provider invested in Three Arrows Capital itself. After the hedge fund went bankrupt, Voyager also filed for bankruptcy a little later. Just a few weeks later, Voyager paid $1.6 million in bonuses to employees. At least Voyager allowed clients to withdraw dollar balances starting in August. Voyager customers are still waiting in vain for their cryptocurrencies.

In the course of its insolvency proceedings, FTX became interested in taking over the failing company. However, the first offer from FTX displeased the cryptocurrency lender’s management. As part of the offer, Bankman-Fried, through its companies FTX and Alameda, wanted to buy all of Voyager’s assets, including debt, except for the debt of Three Arrows Capital. The deal was a “bad offer.” That was the response to the first offer.

Back on Sept. 27, an official press release said FTX wanted to buy Voyager for $1.4 billion. The bankruptcy court has since confirmed the purchase agreement.

At the very least, most customer deposits could be saved this way. Many customers are certainly annoyed by the fact that they cannot decide for themselves whether and when to sell their coins during the crypto-zine. However, customers of another crypto exchange had to wait much longer. The collapse of Mt.Gox, once the world’s largest cryptocurrency exchange, turned many investors into unwitting hodlers in 2014. After nearly nine years, Mt.Gox will begin paying out more than 140,000 bitcoins starting in January.

But back to the FTX takeovers. Sam Bankman-Fried planned to allocate an additional $1 billion of venture capital to support distressed companies in the crypto industry. After major investments in the exchange itself in January, the valuation of FTX rose to $32 billion, the American division of the derivatives exchange – FTX.US – to $8 billion. Earlier, as mentioned, the valuation of the company was $25 billion, with the company planned to attract additional new investments. The reason for the growth of the company, which is three years old, of course, were financing rounds.
 Previously, a team of prominent investors collectively invested $420 million in a Series B-1 funding round. As reported, FTX raised $900 million in Series B – the total amount of investment rose to $1 billion.

So in total FTX raised $1.42 billion in venture capital last year alone. So what to do with all that money? Bankman-Fried announced goals: to enter new markets, improve current offerings, and become a market leader. In terms of trading volume, Binance, Coinbase, Kraken, KuCoin or (for the most part) had greater numbers than FTX. Meanwhile, FTX claimed an average daily trading volume of $14 billion.

Ambitious plans

The U.S. market, of course, was especially important to FTX. To provide legal security, the US subsidiary FTX.US took over the CFTC-regulated exchange of futures and options on digital currencies LedgerX and (like other companies such as Coinbase) created the NFT market, FTX NFT.

Ramnik Arora, FTX’s head of product, has also repeatedly announced strategic investments and acquisitions, as well as partnerships with video game publishers to strengthen the business.

It is also notable that the Ontario Teachers’ Pension Plan (OTPP) invested in the exchange.
 So, cryptocurrency exchange FTX wanted to allocate a billion dollars to expand its product line. To do so, Sam Bankman-Fried’s company needed to absorb a number of startups entirely or buy stakes in some projects. According to the head of FTX, the exchange was already profitable. The capital raised in recent years is in the billions. Therefore, there is an opportunity to consider the option of acquisitions. The goal: to offer customers new products and services in the field of cryptocurrencies.

With a valuation of $32 billion, FTX, which was only founded in 2019, was in the same league as British neobank Revolut ($33 billion) or American neobank Chime ($25 billion). Before its bankruptcy, FTX was among the top 12 “unicorns” in the world.

While founder Zhao’s Binance has been criticized by regulators around the world and forced to cut products and services, FTX has increasingly moved into Binance territory.

“FTX has established itself as the third largest crypto exchange in the world and the largest exchange outside of China,” FTX claimed. The company has invested a lot of money in marketing to become the most well-known brand in the crypto business, as evidenced by its expensive sponsorship of sports and cybersports teams and events.


And so FTX went bankrupt in early November, but the company’s operations have not been discontinued. The bankruptcy filing is meant to “allow the FTX Group to assess the situation and develop a process to maximize profits for stakeholders.
Bahamian users could withdraw funds. This includes owners of Tron-based cryptocurrencies.

Due to bankruptcy, the founder of FTX stepped down from his position. He was replaced by John Ray. Bankman-Fried spoke after the bankruptcy filing and apologized.

FTX lent Alameda Research billions of dollars of client funds. Cryptocurrencies, primarily FTT’s own token, served as collateral. So the foundation of the business was anything but stable. The provoked so-called bank raid combined with the FTT token sale was too serious a blow for the crypto exchange, whose founder Sam Bankman-Fried lost his entire reputation in the crypto sector and his fortune within a week. The 30-year-old entrepreneur’s fortune is down more than 95 percent, but is still several hundred million dollars.

Gradually, under the leadership of newly appointed CEO John Ray, new details about FTX and its financial hole continue to emerge. A document has been published listing the top 50 creditors. They are not mentioned by name, but are listed based on the amounts FTX owes them. The document was filed in bankruptcy court in Delaware.

Figures show that the bankrupt crypto exchange FTX owes a total of $1.45 billion to its ten largest creditors and $3.1 billion to its 50 largest creditors. There are two customers who have each placed more than $200 million on FTX, and eight others who each have more than $100 million on the FTX exchange.

It is not yet known which companies were affected. In any case, these amounts most likely came from large institutional investors.

John Ray’s past publications indicate that there are more than a million creditors in total, and the damage to them is likely to be more than ten billion dollars. According to Ray, the money customers deposited on FTX was even used to buy real estate for the crypto exchange’s employees in the Bahamas.

Possible sale of subsidiaries

However, all is not so hopeless in FTX. As reported, over the years the people in charge have created an international network of 134 companies.

In 2023, the priority will be to consider “sales, recapitalization or other strategic transactions regarding this and other subsidiaries.” FTX Empire will likely be sold piecemeal.


As expected, the bankruptcy of cryptocurrency exchange FTX has a big impact on the cryptocurrency market and the industry as a whole.
 A lot has happened since the FTX fiasco:

  • credit company BlockFi also declared bankruptcy
  • Another cryptocurrency firm, Genesis, has suspended payments
  • This, in turn, affected the U.S. cryptocurrency exchange Gemini, whose credit offer “Gemini Earn” is implemented in cooperation with Genesis

But back to the FTX bankruptcy. The Bahamas Securities and Exchange Commission, where FTX is based, froze the assets of the exchange and initiated the process of liquidation of the company.

FTX actually separated its international business from its U.S. market operations. As mentioned, the business was serviced by its own division called FTX.US. FTX.US offered a different, significantly limited offering, which was due to regulatory reasons. FTX.US was at least formally independent, and earlier this year also closed its own Series A round, a $400 million investment with an $8 billion valuation.

The crypto-exchange fiasco was caused by the fact that customer funds were lent to a supposedly completely independent company, Alameda Research – and lost there. Initially, Bankman-Fried initially stated that the U.S. branch was unaffected by the collapse. But things didn’t go according to plan.

Interestingly, we now have a situation where it is not entirely clear which body is actually responsible for the bankruptcy proceedings. The Securities and Exchange Commission of the Bahamas initiated legal proceedings in the U.S. state of New York. However, FTX itself filed for voluntary bankruptcy in Delaware.

Which further complicates matters: each case used a different article of U.S. bankruptcy law. Usually a Chapter 11 filing (as FTX itself did) is filed if there is a desire to continue operating, while Chapter 15 filings (as the Bahamas Securities and Exchange Commission did) apply when the company’s assets are mostly located in another country.

FTX’s new CEO and still “has never experienced such a failure of governing structures.”

Even the legal responsibility is not quite clear yet. But that is far from the biggest problem in the whole affair. Founder Sam Bankman-Fried was replaced as CEO by restructuring specialist John Ray. This man had nothing to do with FTX so far, but had a lot of experience in bankrupting big companies.

Including a very high-profile case: Ray worked on the liquidation of Enron, the energy company that triggered one of the biggest economic scandals in U.S. history in 2001 with falsified balance sheets.

Ray found serious problems in accounting, documentation of the company’s internal processes, and expense accounting (they were sometimes approved with smiley faces). In addition, the ex-head of FTX often communicated in apps in which messages were deleted after a certain time, and advised others on the team to do so.

Your own statements about ethics are “dumb shit”

Sam Bankman-Fried was surprisingly outgoing. Given the magnitude of the fiasco, any public relations consultant would probably advise silence. But if Bankman-Fried got that advice, he certainly didn’t follow it. Not at all.
 He said he would continue to take money, pay clients, and then try to restart the business.
 But that’s not all. Journalist Kelsey Piper of the American online publication Vox contacted Bankman-Fried on Twitter, and he apparently spontaneously answered her questions for more than an hour. The answers were quite remarkable. Here are some of them:

  • When asked about previous calls for “good” regulation of cryptocurrency, he wrote that it was “just PR. He emphasized this with the words “to hell with regulators.”
  • Commenting on previous statements that doing unethical things is still wrong, even if they ultimately serve a better cause, he wrote: “It’s all nonsense I said. It’s not true.”
  • He went on to say that he should speak well of ethics, because to a certain extent it is something with which to build a reputation.
  • Finally, he said he was still fundraising (“I have two weeks to raise $8 billion”).

But does Bankman-Fried really have a chance of raising $8 billion? Or has he completely lost touch with reality? Given the picture that Bankman-Fried’s successor painted as head of FTX, it’s hard to imagine anyone trusting him with a large sum of money, let alone $8 billion. Consequently, the likelihood that Bankman-Fried will raise that amount is close to zero. It is possible that Bankman-Fried will soon reappear in the industry. Think, for example, of Adam Neumann, the more than scandalous founder of co-working space provider WeWork. After a failed IPO and a significant downgrade of the project, Neumann rather infamously walked away from the company. Three years later, he was able to secure a million-dollar investment for his new startup, including from Andreessen Horowitz.

The collapse of FTX also has repercussions in Germany. Frankfurt-based Bankhaus Scheich said it has about 2.3 million euros on the cryptocurrency exchange. The cryptocurrency transaction company is demanding this amount as part of its bankruptcy proceedings. But that’s not all.

Bankhaus handles cryptocurrency transactions for Trade Republic

One can only speculate whether Bankhaus Scheich will get a single cent. The money was used as protection, a so-called hedge, in cryptocurrency transactions, said Christopher Beck, head of the bank.

The amount remained within the internal risk limit. Client funds were not affected either. For example, Bankhaus Scheich manages cryptocurrency trading in the investment app Trade Republic. Last year, it sold confiscated cryptocurrencies worth about 100 million euros.

Blockchainfond II fintech company Immutable Insights is also among the lenders. The Katharina Guera Foundation used the platform for trading and hedging, a spokesman for the firm said.

German users left an average of 500 euros on FTX

FTX Europe has about 21,000 German customers. They say they have about two million euros in cash and 8.4 million euros in cryptocurrency derivatives on the exchange. A source familiar with the situation told Business Magazine. This corresponds to 500 euros per user and looks quite a significant loss. The European branch of FTX in Switzerland was managed separately from the parent company in the United States, so there is hope that small European investors will get their money back.

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