The company said that FTX, its affiliated cryptocurrency trading fund Alameda Research and about 130 other companies have filed for voluntary Chapter 11 bankruptcy proceedings under the United States Bankruptcy Code.
John J. Ray III became the group’s new CEO. Bankman-Fried, whose fortune Forbes magazine estimated at $17 billion two months ago, has resigned. But he’ll help with the bankruptcy proceedings.
Filing for bankruptcy only applies to companies operating in the United States. However, the Cyprus Securities and Exchange Commission said shortly after the US bankruptcy filing that it had suspended the company’s license to operate in the European Union to protect investors. The FTX crash could therefore be one of the biggest in the cryptocurrency industry.
People cannot withdraw money. The problems of the FTX exchange have shaken the entire cryptocurrency market
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The causes of the FTX problems surfaced several months ago. Bankman-Fried has transferred at least $4 billion to Alameda to shore up the trading company after a string of losses, according to a Reuters source.
It all culminated in the last couple of weeks where people have been trying to withdraw money from this exchange en masse. Second-largest cryptocurrency exchange FTX.com has tried to deal with the onslaught of withdrawals by borrowing from investors and competitors. The company was reportedly in need of a financial injection of $9.4 billion (almost 223 billion kroner).
Market tensions escalated further when cryptocurrency exchange Binance announced on Wednesday that it will not take over FTX exchange as it previously announced.
Deposits are not insured
The troubles culminated in a bankruptcy filing on Friday afternoon. Since deposits are in no way insured, unlike classic bank accounts, people will lose exchange-traded funds.
The Kurzy.cz server reported that investors had $180 billion worth of cryptocurrencies on the exchange. These were ordinary users and large investment companies.
Investors are already starting to write off funds invested in FTX. Sequoia Capital’s venture capital fund canceled a $150 million investment on Wednesday and is now valuing it at zero. FTX investors also include the Canadian pension fund Ontario Teachers’ Pension Plan, the American fund Tiger Global and the Japanese Softbank. He expects a loss of approximately $100 million on his investment in FTX. Cryptocurrency lender BlockFi then said it will hold customer withdrawals until it is clear about FTX.
“We believe there is at most a twenty to thirty percent chance of saving FTX,” said Matthew Dibb of Stack Funds before filing for bankruptcy. He added that speculators pay ten cents out of every dollar to hold FTX deposits.
Binance is giving up rival FTX. Bitcoin continues to lose
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People cannot withdraw money
Due to the collapse of the FTX exchange, the cryptocurrency platform BlockFi, which is linked to the FTX exchange due to a $400 million loan, has also limited its activities. For example, people can’t withdraw money now.
On Friday morning, according to data from the specialized site CoinDesk, Bitcoin sold for around $17,416 (411,700 crowns), while on Thursday it was less than $16,000 (about 389,000 crowns). In the last 24 hours it has gained about 3.8%. Last November, Bitcoin soared to a record high near $69,000.
The FTT cryptocurrency, which is the native currency of cryptocurrency exchange FTX, was up about 15% to $3.28 in the morning. This week, FTT opened above $22, then has since dropped about 85%.
Cryptocurrencies are weakening sharply, investors are concerned about the stability of the entire sector
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