The collapse of the multi-billion-dollar cryptocurrency exchange, FTX, has turned the entire market on its head after allegations arose regarding the misuse of consumer funds this past week. FTX owner and crypto-billionaire Sam Bankman-Fried went from an industry tycoon to a crypto-super villain in the span of a few days after FTX fell $370M short in funding consumer withdrawals, causing FTX to file for bankruptcy. These funds are currently missing, and subsequently FTX is currently being investigated by the SEC and the DOJ for misuse of consumer funds. FTX Token (FTT) has dropped more than 70% and currently trades around $1.43 after being worth $24.50 on November 6th. The collapse of FTX has also caused major cryptos to fall even further, with Ethereum (ETH) trading around $1,256 (-20% over the past week), and Bitcoin (XBT) trading around 16,825 (-18% over the past week). Bankman-Fried was compared to market gurus like Warren Buffett and J.P. Morgan by market analysts after he made strides to fight for the rights of customers during the first leg of the cryptocurrency crash in May-June 2022.
Cryptocurrency enthusiasts and big players alike agree that more regulations are needed to provide customers with the confidence they need when trading crypto markets. There’s a “lot of risk”, said Changpeng Zhao, CEO of the largest cryptocurrency exchange in the world, Binance. “We have seen in the past week things go crazy in the industry, so we do need some regulations, we need to do this properly.” The cryptocurrency market retains its glitz and glamour since it operates using a mostly un-regulated skeleton/structure, but as we’ve seen this structure provides customers with little to rely on when things go wrong.
FTX moved its headquarters from Hong Kong to The Bahamas in 2021, with Sam Bankman-Fried claiming The Bahamas is “one of the few places to set up a comprehensive framework for crypto”. The Royal Bahamas Police Force isn’t a stranger to the mishandlings of large sums of money, and they were quick to release a statement regarding FTX. “In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd., a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred.” Early findings claim FTX’s collapse was preceded by the decision to loan billions of dollars’ worth of customer assets to fund risky hedge trades managed by Alameda, Bankman-Fried’s crypto hedge fund, per the WSJ on Thursday.
FTX executives have alleged the possibility of crypto assets being stolen from an unknown entity. Cryptocurrency risk management company Elliptic said over $470M in crypto assets seem to be missing from FTX’s holding accounts. This collapse has created even more distrust in the cryptocurrency market, while also imposing doubt in NFTs, blockchain technology, and the security of virtual consumer funds on all platforms. As Q4 nears a close, crypto traders who have retained their assets have incurred some of the largest losses since the inception of virtual currency. There’s no question we’re at a crossroads with the current state of the cryptocurrency market. These shortcomings shall act as steppingstones to advance virtual currencies and assets into becoming usable forms of payment in the modern world.