It is no secret in the crypto-sphere that FTX Trading came to a sudden end, with the organisation filing for bankruptcy. All were taken by surprise, wondering how such a thing could have happened. Some went so far as to claim that it was the end of cryptocurrencies as whole. But not only is collapse of FTX not the end of cryptocurrencies, it could even be seen as the opening up of new, previously unexplored landscapes.
First and foremost, however, it is important to understand why FTX collapsed. Once the facts are understood, and the reasons analysed, traders can move forward with renewed confidence.
To begin understanding why FTX collapsed it is important to understand that the collapse did not happen overnight. The ultimate downfall was a gradual build-up that can be traced back as far as 2019. It was in 2019 that FTX was first established, though Alameda Research already existed at that time. However, the 2 entities were closely linked.
What any crypto enthusiast noticed in 2019 is that FTX arrived on the scene with a bang. Around $135 million was sunk into hype advertising, with a great deal of focus put on an advert staring Larry David. It all seemed impressive, suggesting that the company was confident about its position.
TerraUSD crashed on May 7th. It has been revealed that enormous amounts of FTT were flowing out of FTX at the same time. It isn’t yet clear why the crypto outflow happened, but what is known is that FTT is FTX’s native trading currency. It is speculated that loans were made by FTX to Alameda Trading, with significant risks attached.
On November 6th Changpeng Zhao decided to sell FTT Holdings. The move brought about panic, but the CEO of Alameda Research announced that the FTT being offloaded would be snapped up.
On November 7th FTX CEO Sam Bankman-Fried (SBF) put out a tweet saying that FTX was fine, and that all was well. Binance also tweeted saying it was considering buying FTX.
Between the 8th and 11th of November Binance declined buying FTX and the collapse occurred. The company, including Alameda Research, filed for bankruptcy. Investigations are still underway as to what exactly happened towards the end.
It is easy to get caught up in the downfall of FTX, and assume that it was due to a failure of cryptos and blockchain. But this simply isn’t the case. The failure of FTX is the result of poor management and unnecessary risk on the part of certain individuals.
More to the point, the failure of FTX is a highlight of what cryptos were originally supposed to be; decentralised currencies. As FTX collapses, a centralised exchange, attention is now being turned to the decentralised currencies that remain.
Exchanges like Binance.com, Upbit, Huobi, OKEx and XT.COM are not centralised, and so do not share the same risks. If anything, the situation should be a sign to serious traders that they need to be cautious of centralised currencies in a marketplace established on being decentralised.