The Rise and Fall of FTX and Sam Bankman-Fried
January 20, 2023
FTX, also known as Futures Exchange, has filed for bankruptcy after losing approximately $8 billion of profit and earnings. The former CEO, founder, and face of the company, Sam Bankman-Fried, has resigned from his position and leaves the company in a very difficult spot.
FTX really seemed like it was going to be the very next big thing when it came to technology and within the time span of a couple of days, it all came crashing down. For those who don’t know, FTX is a digital currency platform where people could buy or sell BitCoin, Dogecoin, Ether, etc.
With the huge increase in the investing of cryptocurrencies, due to investing being more easily accessible, setting up a Crypto wallet seemed like a match made in heaven. FTX was founded in 2019 and quickly rose to popularity not only throughout America but globally as well due to major acquisitions, low trading fees, and smart, but logical marketing strategies.
Even if you were unaware of cryptocurrency or anything to do with technology, people were being drawn to FTX due to their hopes of being able to put their money into their accounts and be able to gain more profits from these investments. Bankman-Fried continued to grow the company by having multiple celebrities endorse the brand and gained multiple sports sponsorships as well.
A few years after Bankman-Fried founded the brand, crypto started to explode. The average cost for one Bitcoin at the time of the foundation was approximately $10,000 but increased to over $65,000 during 2021. However, after 2021, the price of Bitcoin started to decrease very dramatically–falling all the way down to around $16,000. $16,000 is still a lot of money but compared to the peak of FTX at around $65,000, that is a huge drop off when it comes to money.
Due to the decline of crypto, many other cryptocurrency companies were forced to shut down but FTX was not affected in a negative manner. In fact, FTX was so powerful that they were even able to buy some of their former competitors that were on the decline. However, things started to change in November 2022, when another crypto firm owned by Bankman-Fried, Alameda Research, was issued by CoinDesk.
The critical piece of information that was shown was that Alameda had large amounts of cryptocurrency solely made by and for FTX called FTTs (financial transaction tax). Even though FTTs had lots of marketing value, if the prices of the FTTs were to drop even by the slightest, Alameda Research would be at risk of bankruptcy.
FTTs are basically Bitcoin but just with a different name because they both are cryptocurrencies and they both serve the same purpose just with different names. Due to the FTT creation, many other cryptocurrency companies are trying to copy FTX and make their own cryptocurrency that would hopefully benefit them. They also sway their customers to use their services by giving them perks that may seem too good to be true and then the customer ends up buying the cryptocurrency.
In this case, FTTs use blockchain technology in which computers help out the shared ledger and can help the customer track their digital assets. Not all cryptocurrencies use blockchain technology and in fact, not many are sold out as Bitcoin. FTTs could be bought and sold by all who could afford them, but trading FTTs was very difficult because of their limitations.
On November 6, 2022, Changpeng Zhao, CEO of Binance, the main rival of FTX, announced that they would be selling all of their FTTs. As a result of that announcement, the prices for FTTs dramatically decreased and many customers of FTX quickly withdrew all of their assets from the company. Billions of dollars were being taken back by customers out of FTX. It got so bad that on November 8, 2022, FTX announced that customers were no longer allowed to take money out of their FTX accounts.
In order to recover from this economic tragedy, FTX needed to raise approximately $8 billion in the next few weeks or less just to get out of its current state of bankruptcy.
This just goes to show that money is nothing to laugh at or just unnecessarily splurge. In just after three years, FTX might have to go out of business even though they were at their peak in 2021. And to make matters worse, in the span of just a few days, FTX went from a very manageable and successful company, to complete bankruptcy.