Cryptocurrency trading company FTX is formally seeking protection from its creditors and entered bankruptcy proceedings, the company said in a news release Friday.
The company’s founder, chair and CEO, Sam Bankman-Fried, has also resigned, the company announced.
About 130 other companies associated with FTX, including Bankman-Fried’s investment firm Alameda Research, have also commenced voluntary proceedings under Chapter 11 of the U.S. bankruptcy code,” the company said.
It’s the latest development in a whirlwind week for the company that has in a matter of days gone from one of the largest cryptocurrency trading platforms in the world with $16 billion in assets, to insolvency, frozen customers accounts, regulatory and judicial investigations and rumblings of fraud.
‘Black eye’ for crypto
In a court filing, Alameda lists liabilities in excess of $10 billion US. On the company’s balance sheet, more than $4 billion of the company’s assets consist of something called FTT, which is a crypto token created by FTX.
About a year ago, one FTT token was worth about $80 US. On Monday morning, each one was worth about $22. By Friday morning, they were changing hands for less than $3.
That’s a major red flag, says Charley Cooper, a former chief operating officer with commodity regulator the CFTC, because it means the company is “valuing itself based on something that they invented.”
“The first problem is much of their balance sheet was in the very token they created, which no one really knew how much it was valued at,” he said.
Cooper calls the FTX saga a “black eye” for crypto and it illustrates how it is fundamentally far more risky than the conventional financial system.
“This industry has a lot of exposure to itself. You have a group of entities within an within an ecosystem that trade with each other, that hold positions in each other’s crypto tokens. Money moves back and forth quite frequently and it also draws in various different retail customers, which creates a reputational issue if any of them go down,” he said.
The downfall of FTX is only the most recent fall of a major crypto platform. Earlier this year, crypto company Celsius went under, after the value of some so-called stablecoins plummeted and the exchange wasn’t able to process the deluge of requests for withdrawals from customers.
“I think you’re going to see a more aggressive push in the wake of the collapse of FTX with those regulators trying to stake out a claim,” Cooper said.
Bankman-Fried, the founder of FTX, has emerged in recent years as one of the faces of crypto, appearing at flashy events alongside celebrities like Bill Clinton and supermodel Gisele Bundchen.
The only upside of the FTX insolvency:<br><br>Gisele Bündchen, who held all her money on FTX, will likely return to modeling🤝<a href=”https://twitter.com/hashtag/FTT?src=hash&ref_src=twsrc%5Etfw”>#FTT</a> <a href=”https://twitter.com/hashtag/FTX?src=hash&ref_src=twsrc%5Etfw”>#FTX</a> <a href=”https://t.co/H9R6JDwmUX”>pic.twitter.com/H9R6JDwmUX</a>
—@CryptoHub210
The 30-year-old Bankman-Fried was born in Silicon Valley and lives in the Bahamas, but his crypto empire stretched all the way to Canada.
The Ontario Teachers’ Pension Plan participated in a funding round for FTX as recently as 2021, with a stake of roughly $95 million.
“While there is uncertainty about the future of FTX, any financial loss on this investment will have limited impact on the plan, given this investment represents less than 0.05 per cent of our total net assets,” the pension plan said.
In June, Calgary-based cryptocurrency startup Bitvo agreed to be bought by FTX, but that deal has not closed yet, and the company continues to operate independently.
“We wanted to ensure our customers that your funds are secure with Bitvo and that trading operations as well as withdrawals and deposits have and will continue seamlessly,” the company said.
