Cryptocurrency trading firm FTX is formally seeking protection from its creditors and entered bankruptcy proceedings, the company said in a press release on Friday.
The company’s founder, president and CEO, Sam Bankman-Fried, has also resigned, the company announced.
About 130 other companies associated with FTX, including Bankman-Fried’s investment firm Alameda Research, have also initiated voluntary proceedings under Chapter 11 of the US Bankruptcy Code,” the company said.
It’s the latest development in a whirlwind week for the company, which in a matter of days has gone from one of the world’s largest cryptocurrency trading platforms with $16 billion in assets, to insolvency, frozen customer accounts , regulatory and judicial investigations and rumors of fraud.
“Black eye” for crypto
In a court filing, Alameda lists liabilities exceeding US$10 billion. On the company’s balance sheet, over $4 billion of the company’s assets consist of something called FTT, which is a crypto token created by FTX.
This time last week, one FTT token was worth about US$80. On Friday morning, they changed hands for about $3.
That’s a major red flag, says Charley Cooper, a former chief operating officer with the commodities regulator CFTC, because it means the company is “valuing itself based on something they made up.”
“The first problem is that a lot of their balance sheet was in the token they created, which nobody really knew how much it was worth,” he said.
Cooper calls the FTX saga a “black eye” for crypto and illustrates how it is fundamentally much riskier than the mainstream financial system.
“This industry has a lot of exposure to itself. You have a group of entities within an ecosystem that trade with each other, that have positions in each other’s crypto-tokens. Money is moving back and forth very strongly. frequency and they also attract several different retail customers, which creates a reputational issue if one of them drops,” he said.
The fall of FTX is just the latest fall of a major crypto platform. Earlier this year, crypto firm Celsius collapsed, after the value of some so-called stablecoins plummeted and the exchange was unable to process the deluge of customer withdrawal requests.
“I think you’re going to see a more aggressive push in the wake of the FTX collapse with those regulators trying to claim,” Cooper said.
Bankman-Fried, the founder of FTX, has become one of the faces of crypto in recent years, appearing at high-profile events alongside celebrities such as Bill Clinton and supermodel Gisele Bundchen.
The only advantage of FTX insolvency:
Gisele Bündchen, who had all her money in FTX, will probably model again🤝 pic.twitter.com/H9R6JDwmUX
—@CryptoHub210
Bankman-Fried, 30, was born in Silicon Valley and lives in the Bahamas, but his crypto empire stretched as far as Canada.
The Ontario Teachers’ Pension Plan participated in a funding round for FTX in 2021, with a stake of approximately $95 million.
“While there is uncertainty about the future of FTX, any financial loss from this investment will have a limited impact on the plan, as this investment represents less than 0.05 percent of our total net assets,” said the pension plan
In June, Calgary-based cryptocurrency startup Bitvo agreed to be acquired by FTX, but that deal has not yet closed and the company continues to operate independently.
“We wanted to ensure our customers that your funds are safe with Bitvo and that trading operations as well as withdrawals and deposits have and will continue to be seamless,” the company said.