The FTX Collapse
Assets are dropping from the collapse of FTX, which as recently as one week ago was one of the largest crypto exchanges in the world. The company filed for bankruptcy Friday.
So what happened?
FTX was one of the leading companies in crypto globally, with its CEO Sam Bankman- Fried (SBF) viewed as a figurehead of crypto, making an appearance on the cover of TIME and regularly lobbying in DC.
Behind the scenes — and to the shock of even the most seasoned crypto veterans — it appears that FTX mismanaged customer assets, losing on the order of $10 billion by loaning customer funds to high-risk counterparties. This week when customers rushed to withdrawal funds, FTX couldn’t meet the withdrawal requests. At its core, FTX’s collapse is an unfortunate story of fear and greed.
The breach of trust erodes confidence and is a black eye for the industry. In the short term, potential new investors might take pause as the industry absorbs the contagion and heals. FTX’s downfall potentially accelerates the timeline on which crypto-related regulation will be ushered in, which we see as a necessary catalyst for institutional adoption.
The long-term opportunity of crypto is unchanged. This collapse, like the many crypto collapses of the last decade, is not a reflection of any fundamental technological issues within the asset class, but rather an issue of bad actors, overconfidence, and inordinate leverage.
All of the recent collapses in cryptocurrency have been from centralized players. FTX’s collapse has shown us once again that cryptocurrency’s foundations of decentralization and digital ownership have proved more stable than centralized entities. Protection of customer assets should always be the top priority.