One of the largest Crypto Exchanges FTX collapsed in a matter of a few days. Investors sold
off 6 billion dollars worth of FTT in just 3 days, FTX’s crypto token. the price plummeted
from 26 dollars to a little over 1 dollar losing more than 90 percent of its value.
FTX wasn't just another crypto token, it was the third-largest crypto exchange. Hundreds
of other crypto companies heavily relied on FTX for their survival. BlockFi is also getting
ready to file for bankruptcy. By the time this video is out, they might be bankrupt
already. In July of just this year, FTX bailed them out with a 400 million dollar credit.
So if FTX is going bankrupt, BlockFi is definitely going to follow. BlockFi is one out of hundreds
of other companies that have been relying on FTX to make ends meet. There are also 50
other creditors to whom FTX owes over 3.1 billion dollars. To some of them, FTX owes
more than 200 million dollars. That's a huge sum of money, and that kind of money could
push some companies to the brink of bankruptcy. Now the main question is - What exactly did
FTX do wrong to go from 32 billion dollars to zero in less than 3 days? How SBF fooled
the world's largest investors? And how deeply will FTX collapse impact the crypto market?
We will answer all of these questions and many more, but before we do that, give this
video a thumbs up and let's dive in.
Sam Bankman-Fried is a perfect example who has been giving an image of a hero that has
been trying to save the world but ended up being the devil who has been exposed. There
are a lot of things that could be said about him, but he is not the first who has been
trying to justify his actions to achieve his ultimate goal. Despite his 16 billion dollar
net worth, he has been driving a corolla, wearing a t-shirt with shorts, and never cared
about the luxuries that your typical billionaire loves like supercars, expensive yachts, and
luxury watches. However, the hero turned out worse than any
billionaire you can think of. More than one million people may have lost their money in
the spectacular collapse of the cryptocurrency trading firm. Some had big chunks of their
life savings disappear into a black hole. Most of them were the people who lived paycheque
to paycheque and saw crypto as their only chance to win the lottery of life and finally
join the ranks of rich people, but the pyramid had collapsed. And all of these people have
lost their funds. To understand why FTX has collapsed we have
to understand Alameda's research. Sam Bankman-Fried co-founded Alameda Research,
a quantitative cryptocurrency trading firm, in 2017. to raise money for his company, he
has started a cryptocurrency exchange where people could buy, sell and trade derivatives.
The exchange was so successful that it become the third largest in the world. But that success
became because Alameda research, sam’s first company was heavily trading in FTX, it brought
enough liquidity to start drawing the attention of average crypto traders.
But then in June 2022, Alameda research started suffering serious losses but SBF didn't want
the company to collapse so it lent the money that customers deposited in their FTX accounts
to Alameda Research to keep trading which is a direct violation of FTX rules. Both companies
are owned by SBF which is a textbook example of a conflict of interest. You don't simply
lend 10 billion dollars to another company without the awareness of the CEO.
The problem is that, if Alameda’s research used that money and made profits, it wouldn't
be a problem even though it’s a direct violation of FTX's terms of service, but the opposite
has happened. Alameda Research has lost money again and that was leaked to Binance. Binance
is the largest crypto exchange, it invested in FTX back in 2019 and last year sold its
stake back to FTX for 2.1 billion dollars worth of Binance USD and FTT tokens. so, no
real money was transferred here, FTX gave back to Binance over a billion dollars worth
of their coins that they have been holding and hundreds of millions of their own coins
that they create called FTT. So when it was leaked to Binance FTX lend
more than half of its funds (over 10 billion dollars) to Alameda research to trade crypto
but in return Alameda research lost most of their funds, Binance anticipated that FTX
is going to go bankrupt pretty soon so they sold all of their FTT in early November, 23
million FTT tokens, worth about $529 million at the time. The tension between 2 men, the
CEO of Binance and SBF further pushed the price to plummet. That scared investors and
everyone began withdrawing their money from FTX, customers withdrew 6 billion dollars,
eventually leaving FTX with literally no cash left. at this point, FTX knew that they are
heading into bankruptcy so they began to look for someone to acquire them and Binance was
like - why don't we buy you?! Seemed like a great deal, imagine the number
of clients they could have drawn to their platform, but after looking at their financial
statements, binance was like - this is worse than we have imagined! we are going to stay
out of this! so the deal didn't go through. SBF kept trying
to raise money but it was pointless at this point. Leaked documents showed that the company
had less than $1bn in liquid assets, against almost $9bn in liabilities. The company needed
8 billion dollars to match its liabilities, who would invest in that company?!
Just to remind you, SBF moved 10 billion dollars of client's funds to Alameda research (the
company that 90 percent of which he owns) to trade crypto. to top it off, on the day
when FTX filed for bankruptcy, it came out that around 500 million dollars worth of customer's
funds were missing. What's FTX's response to that, well they claim that they have been
hacked. I mean, come on! why is it coming out on the
day you file for bankruptcy? But it doesn't matter whether it was an inside
job or real thieves have stolen the money. Regardless of the situation, clients lost
their money. The more regulators dug into FTX financial statements, the worst it got,
between 1 to 2 billion dollars of clients’ funds were missing. The collapse was so severe
that over 100 companies that were affiliated with FTX also filed for bankruptcy and SBF
was replaced by John Ray as the new CEO. John Ray was the guy who oversaw the liquidation
of Enron - another corporation that was too optimistic about their future profits but
ended up as the biggest corporate failure of all time.
The aftermath of FTX’s failure goes much beyond FTX. The Crypto market is still trying
to stabilize but when one of the largest exchanges goes bankrupt, that sends a clear message
to investors - Crypto is still too risky to invest!
Everyone suffered. Crypto.com’s token Cronos lost over a billion dollars worth of value.
Genesis suspended withdrawals, and Gemini also paused some withdrawals.
FTX isn't the first crypto disaster. A few months ago in May, terra Luna collapsed and
lost more than 99 percent of its value. Dogecoin that's down more than 70 percent. The whole
purpose of crypto was to decentralize the financial system so that the public would
have some control over the supply of money and not just the government, but it turns
out that when the control is given to people, they would be as corrupted as the corporate
greeders. so regardless of how much we hate the government, there should be some level
of regulations for something like this not to happen. just look at home much money people
have lost. So it doesn't matter how many bots are in
the comment section below criticizing me or anyone else who points out the facts, average
people with limited knowledge of crypto and finance shouldn't get into something they
do not understand. For god's sake, study the subject, and understand how everything works
but even then be careful when you invest, and don't really follow a random billion on
Twitter who is investing in a coin that's named after a dog just for fun. He can afford
to throw 5 million dollars to waste on a crypto coin but you risking your entire life savings,
that is very different. Even if that billionaire drives a corolla,
and behaves as if money doesn't matter to him.
It's just funny how everyone praises you while you are succeeding even if you are doing some
shady things, even if you are directly stealing the client's funds but the moment you get
caught, you turn into the villain. Take a look at Elizabeth Holmes. She was looked up
to as the next Steve Jobs, but now the judge gave her 13 years prison sentence.
Thanks for watching and see you in the next one.