This is a debacle and a huge setback for the cryptocurrency industry.
FTX, one of the largest digital currency exchanges, filed for Chapter 11 bankruptcy on November 11th.
This decision is one of the biggest setbacks for the young crypto industry, which wants to disrupt the financial services sector.
"FTX Group Companies commence voluntary Chapter 11 proceedings in the United States," the firm said in a statement posted on Twitter.
This procedure will allow the company to restructure itself without pressure from its customers and creditors.
Founding CEO Sam Bankman-Fried also resigned, FTX said in the statement.
"In order to begin an orderly process to review and monetize assets for the benefit of all global stakeholders, John J. Ray III has been appointed Chief Executive Officer of the FTX Group," FTX said. "Sam Bankman-Fried has resigned his role as Chief Executive Officer and will remain to assist in an orderly transition."
It continued: "Many employees of the FTX Group in various countries are expected to continue with the FTX Group and assist Mr. Ray and independent professionals in its operations during the Chapter 11 proceedings."
What's Next For Clients?
The announcement caused a plunge in crypto assets. On the cryptocurrency market, bitcoin plunged more than 4%. Over the last seven days, the most popular cryptocurrency has fallen by 17%, according to data firm CoinGecko.
Investors are expecting a cascade of losses as many crypto firms have exposure to FTX. Bankman-Fried rescued and bailed out a lot of crypto businesses during the summer cash crunch.
"I'm piecing together all of the details, but I was shocked to see things unravel the way they did earlier this week," Bankman-Fried said on Twitter. "I will, soon, write up a more complete post on the play by play, but I want to make sure that I get it right when I do."
He added that: "This doesn't necessarily have to mean the end for the companies or their ability to provide value and funds to their customers chiefly, and can be consistent with other routes."
Contrary to what Bankman-Fried, whose immense fortune has been wiped out, suggests, FTX clients and investors are not certain to get their money back. There will be a real legal challenge in the coming months with the central point of whether cryptocurrencies are legal.
Other Industries Impacted
The FTX debacle impacts sectors other than the crypto industry.
The firm had extended its ties beyond the crypto planet. It was a sponsor of several major sporting events. Its two main ambassadors are NFL star Tom Brady and NBA star Steph Curry. The two stars are also shareholders of FTX.
Curry also signed a partnership with FTX in September 2021, which was his first investment in the crypto industry.
Curry’s foundation, Eat.Learn.Play., also partnered with the exchange on charitable initiatives.
Brady and model Gisele Bündchen also have an equity stake in FTX. The equity stake was not disclosed, but FTX said at the time that they would receive an unspecified amount and type of crypto.
FTX's bankruptcy filing had been expected for a few days. Things came to a head on November 9 when rival Binance announced it was abandoning a deal to acquire FTX after discovering that the group's problems were bigger than expected.
The crypto exchange and its sister company Alameda Research, a trading platform, were on the brink of insolvency, a Coindesk report revealed on November 2.
On November 6, Binance and its CEO Changpeng Zhao decided to sell FTT, the cryptocurrency issued by FTX, for $500 million. In doing so they triggered a panic. Many customers then rushed to FTX to request their cryptocurrencies. That day $5 billion were withdrawn from the platform, a record.
FTX needed an injection of $8 billion to meet its obligations.
"I'm really sorry, again, that we ended up here," Bankman-Fried apologized on November 11. "Hopefully things can find a way to recover."
