FTX: A Fast Rise or a Major Bungle?

The court case against Sam Bankman-Fried has run it’s first week with lots of information now circulating amongst the Crypto Currency community that has shone a light on what was really going on inside the company and it’s caused some significant gasps amongst viewers and readers. No doubt Netflix or Amazon has it’s next best selling series in development. Although it will need to wait a little longer for season two as the court appearances are still underway.

There are a lot of discussions underway on what destroyed FTX the number two Centralised Exchange (CEX) which was on it’s way to over taking Binance although FTX wasn’t around as long as Binance it’s growth predominantly came from first trading off arbitrage and then moved onto enabling investors to purchase Bitcoin, Ethereum and other decentralised tokens.

FTX wasn’t a small player with the CEX turning over 21 Billion USD in a single 24 hour window at it’s peak Showcasing the growth of the Crypto currency market.

Liquidity Crisis

2022 turned in to an absolute nightmare for FTX as the company faced an extreme Bank Run and while it appears that FTX participated in the general rule of fractional reserve banking which is a general understanding that banks don’t have all the liquidity deposited as they use those funds to invest in assets. Any bank today would collapse if all it’s clients walked in and sought a withdraw as they would not be able to honour it, it appears FTX might have gone a little too hard with their fractional reserve banking. While also, spending some on alleged personal items.

FTX’s drama unfolded purely because of a deal that was being undertaken for Binance to buy FTX out and in a move that would have most likely breached privileged information, a series of screen shots of FTX financial position and liquidity were released to the general public.

This was also followed by a series of tweets and news articles which many people participated in leading to market hype, I think a core issue that people are not reflecting on is that the deal was between FTX and Binance, Binance had an interest in buying out FTX the competition to retain it’s position as top CEX.

Was it done on purpose?

One can’t help but ask if the leaking of documents was done on purpose by some who wanted to retain their market dominance, if you think about the costs involved in buying out FTX which was a Billion dollar company, destroying it via leaking information would be a cheaper and more effective way for potential buyers who were trying to retain their position.

One could argue that FTX is a loan wolf in how it operated but liquidity issues have always been raised in Crypto currency including with centralised exchanges which is what is leading regulators to develop policy that forces CEX’s to hold the crypto they sell and back their positions.

It’s also important to note that in a previous article we published we discussed audit reports and findings that suggested many Centralised exchanges were participating in insider trading and trading assets amongst their own accounts to inflate market volume and mislead the market into believing there was mass trades being undertaken on their platforms.

This was done to create FOMO and a successful campaign would see investors flock to these platforms and trade into the action which was artificial netting trade profits for centralised exchanges. Audits are showcasing that staff at Centralised Exchanges were being directed to do this.

Unsupervised and left to their own demise.

Ultimately as we continue to read through opening statements and testimonies against FTX Co-founder Sam Bankman-Fried we get to see how not having proper knowledge and experience has led to the collapse. While some “excuses” have been given that Sam acted the way he did because he struggled to get banks on side and had to make decisions.

The evidence suggests that he ordered staff to alter code to enable Almada Research unlimited cash from FTX a move that caused a hole in his titanic that was leaking significantly.

Coupled with USD 8 Billion dollars spent on personal items such as investment properties and luxury items prior to focusing on the functionality of the exchange and investor funds as a priority seem to have caused Sam and FTX the biggest problem to date and got them here.
But the case is still unfolding and we have much to learn.

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