The world second biggest cryptocurrency exchanges, FTX, has filed for bankruptcy protection in the US amid warnings the embattled industry faces a 2008 style crisis.
FTX’s founder, Sam Bankman also resigned as chief executive after a precipitous fall from grace that began last week with reports about the financial structure of his crypto empire.
In a statement, FTX said a range of related businesses including its US based exchange and Alameda Research, a trading firm also owned by Bankman, had filed for chapter 11 proceedings in the US state of Delaware “in order to begin an orderly process to review and monetise assets for the benefit of all global stakeholders”.
CNBC reported that the bankruptcy filing showed FTX has more than 100,000 creditors, assets in the range of $10 Billion to $50 Billion as well as liabilities of between $10 Billion and $50 Billion. The volume of trades at FTX so far this year was $627 Billion, according to the crypto website CoinGecko, placing it in the top five exchanges with industry leader Binance on $4.9 Trillion.
The FTX statement added that Bankman had resigned as chief executive, and would be replaced by John J Ray III, an American lawyer who previously rose to prominence when he was appointed in 2004 to oversee the liquidation of Enron, the Texas energy company that collapsed in 2001 after massive financial fraud was exposed.
As of Friday morning, Bloomberg terminals were reporting Bankman’s wealth as down “100%” from $16.2 Billion earlier this year, with his current net worth estimated at $3.
On Thursday, the Bahamas securities regulator froze the assets of the Bahamas subsidiary of FTX. The islands Securities Commission said it had frozen the assets of FTX Digital Markets and related parties, as well appointing a liquidator for the unit.
There were also signs on Friday of knock on effects from FTX’s struggles. BlockFi, a crypto lender, said it was pausing customer withdrawals. FTX had bailed out BlockFi in June with a $250 Million loan, a week after having loaned almost $500 Million to the struggling crypto broker Voyager Digital. BlockFi said it was “not able to operate business as usual” given the situation.
Bitcoin the cornerstone crypto asset, fell by up to 7% to $16,361 on the bankruptcy news, close to Thursday’s two year low. The crypto market reached a peak of $3 Trillion last year but is now trading at about $850 Billion.
Changpeng Zhao, the founder of Binance, warned the crypto market faced a 2008 style crisis with more failures to come. Speaking before FTX filed for chapter 11 protection, he told a conference in Indonesia that the global financial crisis was “probably an accurate analogy” to this week’s events, the Financial Times reported.
“The events of the past week have precipitated a Lehman Brothers moment for the entire crypto economy,”
said Carol Alexander, a professor of finance at the University of Sussex.
FTX’s fall from the top of the crypto industry started last week when reports emerged that the balance sheet of Alameda was loaded with billions of dollars worth of FTT, the exchange’s crypto token, implying that both businesses were vulnerable to a decline in the token’s value.
A declaration on Sunday by Binance, the world’s biggest crypto exchange, that it was selling its FTT holdings was followed by a bank style run on FTX as customers rushed to withdraw a reported $6 Billion in 72 hours.
As the company faltered under the weight of withdrawal requests, others in the industry turned on FTX. Kim Dotcom, the founder of Megaupload, shared a text message from the attorney Ira Rothken, alleging that FTX was being investigated for failing to prevent US based customers from trading on its offshore exchange.
In a statement on Thursday, Bankman admitted he had “fucked up”, but said that the US branch of FTX, which is ringfenced from the much larger unregulated offshore exchange, was unaffected by the troubles.
Now, however, the heavily regulated American exchange has joined its corporate siblings in bankruptcy proceedings.
