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The Story Behind FTX Bankruptcy: Unveiling the Ascent and Decline of FTX Exchange

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The FTX bankruptcy has garnered significant attention both in the crypto industry and the wider news landscape. This article will delve into the factors that led to FTX’s downfall and explore its implications for the future of the cryptocurrency market. FTX Exchange, one of the largest cryptocurrency exchanges globally, filed for bankruptcy, leaving investors in a state of shock. To fully understand the FTX bankruptcy, it’s crucial to examine the rise of FTX Exchange in tandem with Alameda Research, as the two entities are closely intertwined. FTX Exchange was established in May 2019 by Alameda Research, a quantitative trading firm founded by CEO Sam Bankman-Fried and CTO Gary Wang. Initially positioning itself as a platform for crypto derivatives, FTX offered traders access to popular cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP). This strategy propelled FTX to become one of the leading cryptocurrency exchanges worldwide, boasting over one million users by July 2021. The number of users was expected to increase as FTX aggressively marketed its services and introduced new features, such as the FTX Token (FTT). The FTX Token (FTT) played a significant role in the downfall of FTX, which will be discussed in more detail later in the article. Essentially, the FTX Token (FTT) incentivized FTX customers by offering them various benefits, including trading discounts. Speculators purchased the token with the belief that its value would appreciate as the exchange gained popularity. Additionally, the FTX Token (FTT) employed a burn mechanism, where the founders aimed to reduce the token supply over time. This mechanism led some investors to anticipate that the FTX Token (FTT) would become more valuable in the long run. FTX and Alameda Research swiftly ascended in popularity and user base through effective marketing and seamless capital raising. During the 2021 and early 2022 crypto bull run, acquiring capital investments was effortless. As one of the leading crypto derivatives platforms, FTX leveraged this opportunity by raising hundreds of millions in venture capital. Some attribute the reckless investment behavior from prominent investors like Sequoia Capital to the bullish market conditions. However, with hindsight, the public perception of SBF must have also played a role. News outlets portrayed him positively, and his effective altruism attracted more investors who believed FTX would be the next big thing in crypto. People appreciated his modest lifestyle and apparent concern for animals and the environment. Consequently, FTX and Alameda Research rose to the top of cryptocurrency exchange rankings. Sam Bankman-Fried, the CEO and founder of FTX Exchange, played a central role in the company’s success. He entered the cryptocurrency trading space in 2017 during Bitcoin’s surge to $20,000. Prior to FTX, he had already made a name for himself as a successful entrepreneur and investor by founding Alameda Research in 2017. Alameda Research actively participated in the cryptocurrency market and achieved success through arbitraging the inefficiencies of various crypto exchanges. SBF recognized the price discrepancies between exchanges and profited by buying Bitcoin at the lowest price and selling it at the highest elsewhere. FTX Exchange was established in 2019, rapidly ascending in cryptocurrency exchange rankings thanks to SBF’s effective leadership and the FTX Token (FTT). He quickly became a legendary figure in the crypto space, amassing a massive following and gaining recognition worldwide. SBF’s philanthropic efforts, donating millions of dollars to various charities, enhanced his reputation. As a Stanford graduate, SBF’s achievements seemed destined early in his career. With his early trading success, the mainstream audience viewed him as a respected crypto industry leader. In 2022, FTX gained mainstream appeal by sponsoring renowned athletes and celebrities, such as Tom Brady. FTX even sponsored a sports arena in Miami, renaming it FTX Arena. This move aligned with the declining popularity of air travel and the growing prominence of cryptocurrency. As a centralized exchange, FTX offered users the ability to trade FTX tokens (FTT) and other cryptocurrencies. Centralization allowed the company to make swift decisions and implement them in the market. FTX also offered users a wide range of product options, including futures contracts, options, and perpetual swaps. These products were popular among FTX users as they enabled leverage and a potential increase in returns. FTX’s mainstream appeal attracted numerous casual crypto traders, resulting in exponential user base growth. Unfortunately, this growth caused significant losses for depositors within just a few months. Many first-time crypto users learned the hard way about the risks of leaving funds on an exchange. However, FTX and SBF had one last taste of media success as the bear market exposed the vulnerabilities of other debt-based companies. Debt proved hazardous when collateral evaporated during leveraged margin calls. FTX emerged as a savior in this scenario. While the main focus of this article is on FTX Exchange and Alameda Research, the bankruptcies of other prominent players in the crypto industry also played a role. FTX Exchange and Alameda Research seized opportunities from the failures of other exchanges due to their leverage in the crypto markets. They acquired bankrupt companies and offered solutions that other companies couldn’t. For instance, FTX struck a deal with BlockFi, providing a $400 million revolving credit facility with an option to purchase BlockFi for $240 million. However, FTX itself would succumb to bankruptcy a few months later, aligning with its parent company’s bankruptcy filing. Initially, news outlets commended SBF for “saving” BlockFi, further solidifying the notion that FTX was invincible. However, FTX filed for bankruptcy in winter 2022 due to insolvency. SBF’s carefully constructed public image, along with FTX’s status as a private corporation, shielded the company’s security practices while it expanded swiftly. The collapse of insolvent entities was an inevitability as FTX couldn’t fulfill its safety promises. FTX suffered losses due to insufficient liquidity, a crucial component in cryptocurrency trading. However, one catalyst brought the crypto behemoth to its knees, and that was CZ. After a leaked FTX balance sheet revealed its insolvency, Binance founder CZ discovered the issue. CZ threatened to liquidate all of his holdings of FTX Token (FTT) as a consequence. This chain of events began in early November, and those who received the warning had only a few weeks to withdraw their money from FTX before the platform officially shut down in early December 2022. Binance had acquired a substantial amount of FTX Token (FTT) through prior dealings with the FTX founder. CZ acted swiftly…

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