"Crypto Scam - FTX Scandal Explained"
A year or two ago, your friends, colleagues, or perhaps relatives near or far must have surely told you that you should invest in crypto, and how it is the next big thing. Somewhere, you might have felt FOMO (fear of missing out) and YOLO
They might have even thrown in “you only live once” to persuade you… but, it’s a good thing you didn’t show too much interest in CRYPTO because of FOMO and YOLO, otherwise, today you might have been regretting along with them… But if these people had debated with you in WhatsApp groups, calls, or face-to-face discussions, then boss, a phone call is necessary, especially after the crypto bust of the FTX exchange, which is nothing short of Crypto’s own Lehman moment…
Crypto has been in India since 2010, but many smart investors have kept their distance from it right from the start. The reason? Well, when there’s a more reliable and legally secure earning opportunity available in traditional investment instruments, why would anyone take a shot in the dark with crypto? Yes, trusted by experts and analysts, and going by this year’s statistics, the stock market can offer more stable returns and even recover significantly in a volatile market.
Let's see how FTX's bubble burst.
In 2019, Silicon Valley-born and MIT-educated Bankman-Fried, aka SBF, started the crypto exchange platform FTX with perks like low trading fees and advanced options for traders. FTX was created to provide benefits such as futures, leveraged tokens, and OTC trading.
The mission was to solve the futures exchanges’ crippling flaws that are holding the space back and move the derivatives space towards becoming institutional-grade. FTX also has its own token known as FTT. While FTT gave FTX a profit of $350 million in 2020, it is now in major trouble and has plummeted by over 93% in the past 7 days.
The reason.....?
In November 2021, CoinDesk questioned FTX’s liquidity in a report, following which Binance’s CEO liquidated his $530 million worth of FTT. After this, customers began to withdraw their funds, resulting in withdrawals of around $6 billion within 72 hours. Subsequently, FTT dropped by about 32%, and the situation worsened significantly. However, a new twist emerged when CEO SBF announced that Binance was planning to acquire FTX.
But last week, Binance announced that it was backing out of the deal, citing findings during due diligence, reports of mishandled customer funds, and the possibility of a federal investigation.
Upon this news, FTT plummeted suddenly, and SBF lost 94% of his net worth in a single day. Following this debacle, he approached industry rival Coinbase but to no avail, and finally, in frustration, he filed for bankruptcy on Friday… Not only that, he also resigned from his CEO position.
Although he cited debt and high customer withdrawals as the reasons for this downfall in his tweets, according to Reuters’ report, there’s another angle involved here. Apparently, SBF transferred FTX’s customer funds to his crypto firm Alameda without informing anyone when the company was facing losses.
And now, after this scam, even FTX’s high-profile investors are pulling out – Sequoia, which had invested $213.5 million, is now zeroing out its entire investment.
You may have noticed that in May, the crypto market suffered a loss of around $2 trillion, and now this FTX drama has further distressed investors. It makes one wonder what’s happening with both small and large investors. The situation is quite alarming, especially with the fear of a recession looming.
Unfortunately, according to JP Morgan analysts and many other analysts, the day of reckoning for cryptos has arrived, and now investors will have to be very cautious, as put quite simply by an analyst from Bankrate.com.
“…as an investor you need to seriously question your investing if your investment seems to be evaporated in a week’s time. The prices are entirely based on sentiment and belief in the future of crypto ... If that belief goes away, you've got nothing."
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And besides, “quick earning schemes” and similar related earning opportunities often don’t increase money but rather drain it… Now, whether it’s from the downfall of crypto or the downfall of the crypto firm FTX, there’s a lot to learn from.
