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    The Market Mood swings: Revisiting the FTX Fiasco

    Pathik Bhattacharya
    Nov 23, 2022 18:52
    According to the founder of a crypto exchange, his enterprise might have lasted. It crumbled within days, resulting in one of the decade's worst financial disasters.
    The Market Mood swings: Revisiting the FTX Fiasco
    Source: Bloomberg

    On January 31, 2022, FTX declared that it had secured $400 million from prestigious investors like Softbank, Temasek, Tiger Global, and others.

    Its valuation increased to $32 billion thanks to the financing, surpassing several well-established businesses. TheStreet said that its worth increased significantly by $7 billion in just three months.

    The website lets users buy and trade cryptocurrencies like bitcoin (BTC) and ether (ETH), which will go out of business ten months later.

    The sudden collapse of one of the companies in the cryptocurrency sector, thought to be the most financially stable, has shocked everyone to a great extent.

    Customers and investors of FTX are still determining whether they can get their money back in the form of cryptocurrencies. The sequence of events that resulted in the brutal and quick fall of FTX is shown in the timeline below.

    The Raising Concerns for FTX's Financial Conditions

    Several reporting companies have already expressed concerns over FTX and Alameda Research's financial stability. The paper asserts that FTX's FTT cryptocurrency makes up Alameda Research's assets.

    The following factors make the revelations extremely concerning: As collateral on its balance sheet, FTX was using FTT. Due to the concentration risk and the volatility of FTT, this exposure was quite significant. As a result, concerns about Alameda and FTX's capital reserves are raised.

    The Binance Entry

    In reaction to reports, billionaire Changpeng Zhao, CEO of Binance, a competitor exchange to FTX, declares that Binance would sell around $530 million of FTT. This results in a bank run.

    In reaction to reports, billionaire Changpeng Zhao, CEO of Binance, a competitor exchange to FTX, declares that Binance would sell around $530 million of FTT. This results in a bank run.

    Bankman-Fried reassures that the assets are acceptable in a now-deleted tweet.

    "A competitor is trying to go after us with false rumours. FTX is fine. Assets are fine," he stated on November 7. "FTX has enough to cover all client holdings. We don't invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be."

    The FTX-Binance Deal

    Zhao and Bankman-Fried declare that they have understood Zhao's purchase of the former's empire. Due diligence must be completed before the deal can be finalized.

    BTC is declining. Stock market prices for businesses involved with cryptocurrencies, such as Coinbase and Robinhood, are falling sharply.

    The Dissolved Deal

    Binance has announced that it is retracting its takeover offer since the situation is worse than the business had anticipated.

    "As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com," 一 Binance remarked.

    Panic has now taken hold. FTX is left to its own devices. There is little question that the inconceivable has become a reality. In the evening, Sequoia Ventures, a significant investor in FTX, writes down its entire interest in the platform.