One of the largest crypto exchanges has just filed for bankruptcy. Initially thought to be bought out by Binance, FTX has now been on a death spiral since. The leak of FTX balance sheet caused for a plummet in the FTT coin which then only lead to FTX to get in a liquidity crunch.
FTX’s recent collapse has revealed that the cryptocurrency exchange was using two US accounting firms, Armanino and Prager Metis, to audit its books. Notably, both of these auditing companies are highly reputable; Armanino is one of the 20 largest revenue-generating accounting firms in America while Prager Metis styles itself as the first accounting practice to open a headquarters in the metaverse. In the US, there is a race among several firms to win business from burgeoning crypto companies by touting expertise in digital assets. However, accounting rules for these assets are often unclear, and businesses remain in their infancy.
From bad to worse
The Wall Street Journal reported that FTX.com, an exchange, loaned out more than half of its customer funds to back risky wagers by Alameda – totaling at $10B of the customer’s $16B assets.
SBF went on Twitter and admitted his wrongdoings, promising to use “every penny” the liquidity-strapped exchange has to repay its users. He wrote that Alameda was “winding down trading” and “one way or another, soon they won’t be trading on FTX anymore.”
He said that he should’ve been more transparent with communication, and he also misjudged users’ margin given “a poor internal labeling of bank-related accounts,” which was once of the main reasons why Binance backed away from its proposed FTX deal.
The 30-year-old claimed that FTX.com still has a chance to survive despite its current liquidity issues.”there are a number of players who we are in talks with, LOIs, term sheets, etc.”.
Towards the end of the week, FTX Group, made up of FTX.com, FTX.US, Alameda Research and around 130 other entities, submitted for Chapter 11 bankruptcy proceedings in America after its CEO SBF left his role due to the company’s multibillion-dollar deficit and being unable to pay an overwhelming number of customer withdrawals. FTX Exchange may not be fully shutting down, but it will have to make some changes in order to pay its creditors. The company was founded in 2019. It was later noted that FTX would stop processing withdrawals.
As it stands the current price of Bitcoin is around $16.5K. This is down from an all-time high of $64K exactly one year ago. Bitcoin’s price has had a vumpy 2022 regardless and this event might have just made things worse.
The meaningful influences for the extended crypto community are just beginning. For example, crypto lender BlockFi recently paused client withdrawals citing a “lack of clarity” on the status of SBF’s crumbling empire. Similarly, Bloomberg reported that SoftBank Group had invested nearly $100 million in FTX.com but expects to write off the full value of its stake due to current market conditions.
Three Arrow Capital
Who in #crypto is next?
— Altcoin Daily (@AltcoinDailyio) November 11, 2022
This week’s events in the crypto world were only the latest major setback. Last May, for example, saw the failure of Terra and associated ecosystem projects. This caused many different lenders and companies within the space to go bankrupt- which then led to depressed token prices across board, as well as more intense regulatory scrutiny from government authorities. Some experts have commented that this recent FTX drama will only exacerbate these previous negative developments.
It is clear that the crypto world is in a state of flux. These latest events will only serve to further shake up the industry and it remains to be seen how things will pan out in the coming weeks and months. One thing is for sure, though: the crypto world is not for the faint of heart.