FTX collapse is sending shockwaves through the crypto sector. Bankman-Fried and his company are being investigated by the Department of Justice and the Securities and Exchange Commission. The investigation likely focused on the possibility that the company used customer deposits to fund bets at the Bankman-Frieds Alameda Research hedge fund in violation of US securities laws.
Sam Bankman-Fried has received much acclaim as he quickly rose to superstar status as the head of cryptocurrency exchange FTX: the savior of crypto, the newest force in democratic politics and possibly the world's first trillionaire. Now, comments about the 30-year-old Bankman-Fried ranged from amused to hostile after FTX filed for bankruptcy protection Friday, leaving its investors and customers feeling betrayed and many others in the crypto world fearing the repercussions. Bankman-Fried himself could face civil or criminal penalties. "I've known him for a number of years and what just happened was shocking," said Jeremy Allaire, co-founder and CEO of cryptocurrency company Circle.
Under Bankman-Fried, FTX quickly grew to become the third largest exchange by volume. The stunning collapse of this nascent empire has sent tsunami-like waves through the cryptocurrency industry, which has seen a lot of volatility and turmoil this year, including a sharp drop in the price of Bitcoin and other digital assets. To some, the events are reminiscent of Wall Street's corporate domino-like failures during the 2008 financial crisis, especially now that supposedly healthy companies like FTX are failing.
The venture capital fund cleared out over $200 million worth of investments in FTX. Cryptocurrency lender BlockFi suspended payments to customers Friday after FTX filed for bankruptcy protection. Singapore-based exchange Crypto.com saw a spike in withdrawals this weekend due to internal reasons, but some of the action can be attributed to FTX's jitters.
Bankman-Fried and his company are being investigated by the Department of Justice and the Securities and Exchange Commission. The investigation likely focused on the possibility that the company used customer deposits to fund bets at the Bankman-Frieds Alameda Research hedge fund in violation of US securities laws. "This is a direct result of a bad player breaking all the basic rules of tax liability," said Patrick Hillman, chief strategy officer at Binance, FTX's biggest competitor. Early last week, Binance appeared poised to bail out FTX, but stepped down from FTX after reviewing its books.
The ultimate impact of FTX's bankruptcy is uncertain, but its failure will likely result in the destruction of a multi-billion dollar fortune and even more skepticism about cryptocurrencies if the industry is able to pass a vote of confidence. “I worry because retail investors are suffering the most and because too many people mistakenly associate Bitcoin with the fraudulent 'crypto' space,” said Cory Klippsten, CEO of Swan Bitcoin, who spent months worrying about the business model Bitcoin, FTX, created. . Klippsten is openly enthusiastic about Bitcoin, but has long been highly skeptical of other parts of the crypto world.