FTX.com Failure – How’s and Why’s

FTX, the third largest crypto exchange, officially filed for bankruptcy on Friday, the 11th of November. This day will probably be remembered as one of the worst days for the crypto market, causing price decrements for all coins.

When we thought it was all done and the dust had settled, that very Friday evening, the officials informed us that FTX had been hacked and more than $600 million was missing. They advised clients to delete the FTX app and restrain themselves from using the website. Users are instructed not to install any updates since all the apps allegedly contain malware.

Hours after this announcement on Telegram, the company disclosed that they’d be moving all their funds to cold storage after they filed for bankruptcy. Allegedly, this should protect the remaining funds and help to observe any unauthorized transactions.

What Has Changed Since Friday the 11th?

As said, Friday was a bad day for the crypto community. The FTX’s native token, FTT, fell from a whopping $26 at the beginning of the month to $2 per token. At the time of writing this review, the price was $1.8 per coin. The main reason for such a drop is mistrust. Depositors rushed to sell their FTT, with Binance’s CEO Changpeng Zhao leading the sell-off.  

Tether’s stablecoin USDT has faced around $3 billion in redemptions as people ran to cash out their digital currency. It impacted the USDT price, which was lower than a dollar for the second time in its history. Other crypto coins also felt the disruption, with prices plummeting from 10-50% per coin.

Additionally, many wallet holders reported having their balance drawn to $0 after the hack, which further deepened the crisis. And that’s why other crypto exchange owners rushed to assure their investors that they won’t be of the same destiny. Suddenly, we’ve got a number of reports of companies sharing their collateral portfolios, all claiming to be solvent enough to handle any unpredicted events.

For instance, Binance, the biggest crypto exchange in play, showed investors to hold over 30% of its collateral in BTC rather than their native token. It seems that Changpeng Zhao has learned something from the mistakes made by Sam Bankman-Fried, the infamous former CEO of FTX.com.

According to crypto analysis, this crisis can be compared to the financial crisis from 2008.

Future Crypto Predictions

While we cannot say anything for certain, some indicators are showing what the crypto future will look like. While created as a decentralized market, away from any government oversight, FTX’s crash clearly showed why investors need regulatory protection.

Without regulations in place, depositors would never be able to claim their losses and request reimbursement. Further, without supervision, the scheme between Alameda Research and the FTX would never have been discovered.

Finally, we would not see exchanges showing such a high level of transparency regarding keeping their clients’ funds safe and collaterals on a sufficient level. 

Since the FTX went bankrupt, numerous companies have decided to soothe their investors. Coinbase sent an email to their customers explaining how their business is different and offers a higher level of fund protection. Something similar was done by Crypto.com when another unfortunate thing happened. Namely, the company tried to transfer $400 million to a cold storage wallet, but the money was sent to the wrong address. Luckily, the mistake was corrected, or we would see another FTX in a span of just a couple of days.

What Can Depositors Do?

According to a Tweet made by the executives of FTX, Bahamian clients were exempted from the withdrawal ban. However, the official regulator, the Securities Commission of the Bahamas, denied the fact, claiming that due to the company’s global failure, they involved the Financial Crimes Investigation Branch and are working on uncovering any criminal misconduct.

For now, it seems that there are not many options. Clients can wait for the liquidation process to end, which can take years. There’s also a fact that the firm assessed its liquid assets and liabilities to $10-50 billion, which is quite a large gap. Therefore, it’s unclear whether there will be enough money to cover all the investors.

The best option you have is to take all the evidence, e.g., screenshots of your investment account with FTX, and file a dispute with the official regulator and law enforcement. Since FTX has multiple regulations in various jurisdictions, including the EU, Australia, the US, the UAE, and more, you can contact a local license provider.

In the likely event that you need assistance with such action, contact our recovery specialists. We will be glad to assist with the matter and help you get your money back.