- [Narrator] Over $150 billion.
In three days, that's how much the world's
15 largest cryptocurrencies lost in market value.
It's because of the Crypto Exchange platform FTX,
which is behind this token, named FTT.
On November 6th, the token's value began to fall,
losing more than 80% of its worth in the span of 72 hours.
Once seen as a survivor in a struggling market,
the fall of FTX has sent shockwaves
through the cryptocurrency industry.
So, what went wrong?
FTX is the brainchild of Sam Bankman-Fried.
He's commonly known as SBF on social media.
He's been previously hailed as a savior
of the crypto industry.
- You were called the JP Morgan of crypto.
- [Sam] Yep.
- Does that bother you or not?
- It doesn't bother me too much.
- [Narrator] Bankman-Fried founded
the quantitative trading firm Alameda Research in 2017.
Two years later, he started FTX, an exchange platform
for buying or selling cryptocurrencies.
Right now, he's the majority owner of both firms.
- That kinda aroused some skepticism among industry players
and traders, investors, stakeholders,
that there could be some sort of conflict of interest
in terms of whether research was getting
preferential treatment on FTX, vice versa.
But the official narrative that SBF gave in the past
is that the two companies are separate entities.
- [Narrator] After its launch,
FTX attracted major investments from Silicon Valley
and Wall Street.
- Yeah, we'd raised a few billion dollars
over the course of the last couple years
and we're a profitable business.
- [Narrator] It grew into the fourth largest
cryptocurrency exchange for derivatives trading.
Celebrities promoted the platform in ads.
- I'm getting into crypto with FTX.
You in?
- It's FTX.
It's a safe and easy way to get into crypto.
- I don't think so.
- [Narrator] FTX was gaining steam,
and in the process, often tussled with Binance,
the world's largest crypto exchange by volume.
- When FTX was getting started, Binance invested in FTX
and it was one of the crypto exchange's earliest investors.
But FTX, as we know, grew really rapidly
and became a very substantial rival to Binance.
- [Narrator] As FTX grew in the industry,
Bankman-Fried furthered his reputation as a Crypto savior,
when digital asset prices collapsed earlier this year.
- It's not fair to customers.
- [Narrator] He bailed out firms,
spending about a billion dollars.
- It's okay to do a deal that is moderately bad
in bailing out a place.
- [Narrator] But that image didn't last.
On November 2nd, CoinDesk published a report
based on a leaked Alameda balance sheet.
According to the leaked data, Alameda claimed it had
over 14 billion in assets at the end of June,
but most of that was FTX's tokens.
Alameda CEO Caroline Ellison tweeted
that the balance sheet wasn't complete.
- Caroline also said its financial situation
is under control, the company is doing well.
However, it seems like the market
just didn't really buy that,
and then traders continue to withdraw from FTX.
- [Narrator] FTX and Alameda did not respond
to a request for comment.
Things escalated on November 6th,
when Binance said it would offload
hundreds of millions of dollars of FTT.
Binance did not respond to a request for comment.
The announcement sparked mass withdrawals.
That day, FTX processed $4 billion of transactions,
many times the normal amount for a day.
Some got backlogged, which sparked demand for more.
By November 7th, that number ballooned to $6 billion.
On the 8th, a day later, FTX's finances were in crisis.
Binance stepped in and said it would buy the company.
It seemed like FTX might have solved its liquidity problem.
But on the 9th, Binance backed out
of the non-binding acquisition.
The next day, The Journal reported that FTX
used money from customers to fund risky bets
made by Alameda.
- It's a shocking revelation for a lot of people
in the industry,
because even though there has been a lot of speculation
about FTX and Alameda research being joined at the hip,
nobody could have foreseen that SBF was willing
to transfer billions of customer funds
at his crypto exchange to help his crypto trading firm.
- [Narrator] The Securities and Exchange Commission
and Justice Department are investigating FTX,
according to a person familiar with the matter.
- This is not like the New York Stock Exchange or Nasdaq.
They take people's money, they borrow against it.
It's not much disclosure.
And then they trade against their customers.
- [Narrator] A spokesperson for the Justice Department
declined to comment.
Bankman-Fried told investors that FTX
couldn't cover withdrawals since its collateral
was dropping in value and couldn't be liquidated,
according to people familiar with the matter.
On the 11th, Bankman-Fried resigned as CEO
and FTX and Alameda filed for bankruptcy.
Afterwards, FTX said it was probing a potential hack.
More than 370 million worth of crypto funds
appeared to be missing,
according to crypto analytics firm Elliptic.
On the 12th, The Journal reported that Alameda
and FTX executives knew that FTX
had lent its customers money to Alameda.
- So a lot of retail traders and investors I've talked to
are feeling desperate or frustrated.
The majority of the people in the industry
could not have seen this coming
because FTX is such a dominant player.
- [Narrator] The fallout has led other companies
to tout their reserves and call for more transparency
in the industry.
As of November 11th, according to the bankruptcy filing,
FTX is estimation of their liabilities
would make it the largest crypto related bankruptcy
ever filed.