The most recent casualty of the cryptocurrency markets is Sam Bankman-Fried or SBF. Presently worth about $850 billion, the worldwide crypto market cap came around more than 70% in the wake of arriving at its level of $3 trillion in November 2021. Numerous cryptocurrency platforms and funds failed along the way. On November 11, 2022, SBF’s $32 billion cryptocurrency exchange FTX also filed for bankruptcy. One of the most dramatic collapses in history occurred overnight with FTX. So what was the deal?
Sam Bankman-Fried, crypto’s white knight, is now 30 years old and was born and raised in California. He started working in the investment industry in 2014, following his graduation from MIT. He established Alameda Research, a cryptocurrency trading company, in 2017. The cryptocurrency exchange FTX was then established by him in 2019. The majority of SBF’s wealth—$26 billion at its peak—came from these two entities.
In 2021, Bankman-Fried’s wealth increased in tandem with the crypto market’s surge. His success seemed to be unstoppable. He became famous and started getting very involved in politics. SBF was hailed as the crypto industry’s savior during the crypto winter of 2022 because he rescued Robinhood and other fledgling crypto companies.
The third-largest exchange in the world quickly became FTX. Since its inception, it has raised over $2 billion in venture capital, and its valuation has continued to rise. His firm was supported by the world’s top confidential value and speculative stock investments and embraced by superstars like NFL legend Tom Brady, supermodel Gisele Bundchen, Seinfeld co-maker Larry David, and NBA stars Steph Curry and Shaquille O’Neal.
The problems with FTX began when Binance, the largest crypto exchange by volume and a rival of FTX, invested in the company early on. In 2021, Binance CEO Changpeng Zhao decided to resell his stake in FTX to SBF. Binance received $2.1 billion in FTT, the native cryptocurrency of FTX, and BUSD, a fiat-backed stablecoin issued by Binance and Paxos.
The principal difficult situation came when on Nov. 2, 2022, CoinDesk distributed a report with stressing news over Alameda’s and FTX’s monetary well-being. Mr. Zhao declared a few days later that he would sell his FTT tokens worth $580 million. As a result, the price of FTT dropped by more than 80%, prompting concerned investors to withdraw $5 billion from the platform within a few days. As a result, FTX experienced a typical bank run, resulting in a liquidity shortfall of $8 billion.
SBF turned to his main rival, Binance, for a loan because he was in desperate need of money. FTX crashes. Binance pulled out of the deal the following day, forcing FTX to file for bankruptcy on November 11 after initially agreeing to this on Nov. 8. SBF resigned as CEO on the same day, and FTX stopped all cryptocurrency withdrawals. Because numerous other crypto companies were exposed to FTX and FTT, the damage quickly spread throughout the crypto market. Bitcoin has fallen to a two-year low since the fallout.
There is more to the tale. A hacker stole cryptocurrency worth more than $400 million from the company on the day it declared bankruptcy. The breakdown started off various examinations by the SEC and Equity Division and in seven days, the Protections Commission of the Bahamas, where FTX was based, assumed command over the bankrupt FTX.
SBF was arrested and charged on December 12, 2022, in the Bahamas. SBF was charged with a variety of offenses, including wire, commodities, and securities fraud. He is accused of mismanaging his business, lying to investors about FTX and Alameda’s financial situation, and illegally utilizing customer funds to assist Alameda.
on Dec. 22, after being extradited to the United States. The largest bond in history, valued at $250 million, was used to release SBF. SBF has declared his innocence. Over one million creditors currently owe FTX, with the 50 largest owing close to $3.1 billion. Customers are still unable to access their funds.
Self-defense: What can we learn from the sudden rise and fall of SBF and FTX? Digital money misrepresentation is a genuine issue that influences financial backers and dealers across the globe. It is essential to comprehend that, in contrast to investing in stocks, the cryptocurrency industry is still in its infancy and extremely volatile. There is still little oversight and little regulation. You should only put money into crypto investments that you can afford to lose.
A non-custodial wallet is one of the best ways to safeguard yourself. This indicates that platforms such as FTX do not control your cryptocurrency. Unfortunately, those who used a custodial wallet with FTX may never receive their funds back. Non-custodial wallets can be divided into two categories: there are hot and cold wallets.
Cold wallets are hardware devices where you can store your cryptocurrency offline, whereas hot wallets are connected to the internet, such as through your phone or computer. If you store your cryptocurrency in a cold wallet, you are less likely to be hacked or attacked online. However, cold wallets are more difficult to use, and if you forget your security details, you may never again have access to your cryptocurrency.
Keep precise records and download all of your holdings and transactions. Users of FTX cannot, regrettably, log in to view their statements. You will require them for charge purposes and proof of your property to recover whatever is possible.
While there is no foolproof way to avoid being a victim of cryptocurrency-related fraud, there are precautions you can take to lower your chances. Consider crypto-related investments or dealing with unknown parties with extreme caution. Because crypto is still in its infancy, you should only put money in it that you can afford to lose. This way, you won’t lose your life savings if your platform fails as FTX did.
