The FTX Collapse: Who Is Behind It? And How Does This Affect The Develop Of Cryptocurrency?
Since the introduction of cryptocurrencies, they have been defined by numerous ambiguities and hazards.
Despite this, people have been welcoming this area in a wild way, especially following quick climbs, which reached the maximum price of bitcoin at $ 69,000 during the year 2021. Some estimations aided this turnout in pushing the Bitcoin price to $100,000 or higher.
Traders in this market are speculators in the first place, and it is impossible to consider their activities as an investment, especially in the absence of numerous rules connected to legal problems and defending the rights of dealers.
Many times, the media announces that cryptocurrency brokers’ platforms or exchanges have been hacked, or that cryptocurrencies worth millions of dollars have been stolen, and so on.
Recently, the media reported that the cryptocurrency trading platform “Binance” had withdrawn from a plan to purchase its competitor, “FTX.”
Adding to the severity of the issue for the FTX platform and the crypto market in general, was the statement of FTX founder Sam Bankman-Fried, who revealed that he needed $8 billion in finance in the immediate future to satisfy the withdrawal requests received for the platform in the previous days. Following the announcement of this news, the FTX currency FTT and cryptocurrencies in general experienced severe price drops.
In this essay, I’ll give you a quick rundown of what’s happening, why it’s happening, what we know so far, who was involved, how it happened, and where we could go from here.
FTX and Binance: What Are They?
The biggest cryptocurrency exchange in the world is called Binance, and its most well-known owner is CZ. Over $7 trillion worth of volume was traded on its platform last year, which is more than half of the total value that was moved in cryptocurrencies over the duration of the whole year.
Sam Bankman-Fried, a billionaire, founded FTX, the fastest-growing cryptocurrency exchange, which also owned the FTX Arena in Miami, helped save businesses like Voyager, and spent outrageous sums of money on collaborations with Tom Brady and Steph Curry.
SBF Has Close Links To Wall Street And Washington
There have been reports about FTX and its CEO Sam Bankman-Fried, a man with extensive ties on Wall Street and in Washington, pushing regulators against Binance and even supporting anti-Binance stories in the mainstream media, since late 2020. This sparked the publication of many reports by Reuters that were harshly critical of Binance and CZ and went too far by focusing on CZ youngsters.
The situation didn’t turn out well since CZ was quite unhappy that the SBF and those close to him were behind the unverified pieces. Evidently, the tension between CZ and SBF grew as a result of their negative feelings toward one another.
FTX Collapse: What Happened?
This story begins between SBF, the founder of FTX, and CZ, the owner of Binance, two of the founders of the biggest cryptocurrency exchanges in the world. It goes without saying that these two men are fierce rivals.
On November 6, CZ, the owner of Binance, announced to the world that roughly $2.1 billion was paid out as part of their equity departure from FTX in a mix of BUSD, a stablecoin owned by Binance, and FTT, a token owned by FTX. This was made possible by the recent discovery of a significant movement of 23 million FTT tokens worth around $585 million within Binance, which CZ subsequently revealed was really a transfer of money for the purpose of selling it. He had learned a great deal from Terraluna’s demise, and he planned to prevent a repeat of it by becoming engaged with everyone who could be in danger. Naturally, this caused FTX collapse.
Things started to become insane the next day. It all began when a balance sheet for Alameda Research was presented on the currency desk. And just so you know, even though they are two separate businesses, FTX and Alameda Research are one and the same; they both belong to the same guy.
According to the document, as of June 30 this year, Alameda Research had a balance sheet of about $14.6 billion. Of course, this is a lot, but it was discovered that the majority of their assets were stored in their FTT token, which they mysteriously created by printing $14.6 billion, of which $8 billion was FTT. This is when everything started to spiral out of control.
FTT had a market cap of just over $2 billion prior to this complete crash. This indicates that even if FTX tried to sell off its assets, it would not be able to get close to the value it had shown on its balance sheet. After then, everything started to go south, and people started taking their money out of FTX.
A liquidity crisis in FTX resulted from this.
The Problem Of Infinite Money And Its Involvement In The Crisis
When the corporation develops the FTT virtual token. Then they may create this money by magic, give it a fake value, buy most of the supplies, and then burn the remaining amounts to raise the value. They may virtually transmit these tokens to sibling business Alameda Research now that they have value.
The earnings then show up on their balance sheet, allowing them to use this budget to borrow additional assets and cryptocurrencies like Bitcoin and Ether. They can transmit all of those tokens back to FTX after borrowing these assets. By doing this, you have established an endless money imbalance in which you are free to print as much cash as you choose.
If there is a bank run, and everyone becomes afraid and attempts to withdraw all their money at once, then it’s time to push since consumers also have to convert their stablecoins and assets like FTT tokens into actual money.
However, if that platform lacks the funds to pay people, it must liquidate its own assets, which in this case are magically printing FTT tokens. But if you can’t liquidate these FTT tokens because they’re worth nothing, you don’t own anything of real value.
This is known as the infinite money glitch.
How Did Binance Step In?
First, it’s important to realize that Binance is not the primary cause of all of this. You may discover some people arguing that Binance observed a competitor “FTX” expand at a quick pace therefore they crushed it. This could be the case. This idea, however, is flawed in my opinion because everything that hurts FTX also hurts Binance. Additionally, everyone has a stake in seeing that cryptocurrency develops.
Therefore, we tried to explain how a significant business like FTX, which was over $32 billion in value, could vanish overnight just because a rival promised to sell assets worth $600 million. I hope you get the image.
On Tuesday 8, Binance said that it had achieved a deal to salvage FTX by acquiring the business, but it also stated that “Binance has the discretion to pull out from the deal at any time.” Sam Bankman-Fried said at the time that the agreement would safeguard clients while enabling FTX to complete processing their withdrawals.
However, Binance stated on Wednesday 9 that it will stop purchasing FTX, citing regulatory inquiries and allegations of financial mismanagement. The cryptocurrency ecosystem has grown more robust over the past few years, and according to a statement from Binance, “We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.”
What Part Does Politics Affect The Current Crisis?
It’s no secret that Sam Bankman-Fried has contributed more than $40 million to political campaigns this year alone, supporting both Republican and Democratic candidates. Sam also established a framework for the cryptocurrency sector that is not endorsed by Binance. They charged him with working behind their backs with authorities who would ultimately hurt cryptocurrencies by enlarging censorship, decreasing decentralization, and devaluing Web3.
Due to the cryptocurrency market’s disagreement with FTX’s strategy for cooperating with authorities, this point suggests that both SBF and FTX have emerged as competitors for the whole crypto industry.
The creation of Bitcoin and cryptocurrencies is entirely logical. to lack any type of monitoring from a dependable body, such as the government, and to be decentralized Because it doesn’t appear to be the type of business that runs within the constraints of the conventional banking system, Binance, for instance, has adopted a strong position in favor of decentralization.
So, How Will Cryptocurrencies Develop In The Future?
In the end, I believe this will occur. We’ll observe two opposing viewpoints:
First opinion: cooperating with regulators to make Bitcoin and other cryptocurrencies safer is acceptable because safer is better.
However, it also means that it takes longer since we are attempting to engage a third party, and this is a blind government that isn’t exactly in line with what Bitcoin was intended to be.
The second view: Let the free market do something as the challenge does, and let it evolve itself because it will generate the end product since it is a self-evolving system. That’s what we’re seeing with finance, we’re seeing indications of reserves as the next step in preserving clients’ cash. This system will naturally desire to evolve and develop into a better system. But the difficulty with this technique is that every stage in the evolutionary process is incredibly unpleasant.
For example, in 2019, we witnessed the crash of ICOs, the crash of Terraluna, Celsius, and now FTX collapse. This market determines what works and what does not. So he will continue to develop a better product.
Additionally, as we have indicated, a growing number of people will experience a financial loss.
Overall, both options offer advantages. As a result, they will keep kicking, punching, and screaming at one another to show who is superior, but Bitcoin will keep developing and getting better.
