Crypto collapse: FTX CEO apologizes, then declares bankruptcy like Lehman

“I did a ***, sorry”. Thus began the very long outburst on Twitter with which Sam Bankman-Fried, founder and CEO of FTX, explains how we got to the situation of the past, tormented, hours. But the first of 20 tweets posted in succession to make Twitter a newsroom devoid of journalists contains “the most important thing”that is a “I am sorry”.

However, we need to take a step back to understand what happened and what will still haunt the entire cryptocurrency market, despite the afternoon rebound of Bitcoin, Ethereum and company. The whole storyrebuilt by Reuters, Global X and others, it starts when about a week ago a budget of Alameda Research, a trading company founded by Bankman-Friedthe man of FTX who, to be clear, is a platform for trading cryptocurrencies such as Binance, Coinbase and others.

Coindesk’s indiscretion confirmed old suspicions: Alameda possessed considerable quantities of FTTs, the token issued by FTX, so the two Bankman-Fried creations were dependent on each other. If the value of FTT had dropped, Alameda would have suffered, and the same would have happened if the trading company had sold significant quantities of the token. Fates, in short, were linked. And this does not appeal to investors, especially if the dynamics had been silenced and came out suddenly.

The fuse was lit by FTX’s rival Binance – Reuters has devoted ample space to the rivalry between Changpeng Zhao, the number one of Binance, and Bankman-Fried of FTX, find the link in STREET. When Zhao tweeted shortly thereafter that he would close his participation in FTX, that’s it the fears of the previous days have turned into panic: in 72 hours, between Saturday and Monday, there was a rush to withdraw the amount invested in FTX, in an attempt to put some money in the pocket before a possible liquidity crisis.

Which in fact there was. FTX had enough liquidity to cover around 80% of client withdrawal requests (in the order of several billion dollars), so on Tuesday the taps were closed and the market suffered the vertical collapse we mentioned. In the midst of the storm, Binance intervened, which signed a non-binding letter of intent to take over FTX in order to guarantee the liquidity that was no longer there.

As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.

– Binance (@binance) November 9, 2022

The crypto market enjoyed a few hours of relative tranquility, before collapsing again and even more abruptly yesterday evening, when investors acknowledged Binance’s renunciation of the acquisition. FTX (the international division, the US one has sufficient liquidity) it was without the cap to its chasmand the value of FTT, the exchange’s token, did not collapse below $ 2 (almost 90% dilapidated in 48 hours).

In the meantime, after dramatic hours, the value of the cryptocurrencies that had suffered the shock wave began to rise again: at the time of writing, around 7 pm on November 10, the Bitcoin over 7%, Ethereum over 15but the toxins are unlikely shock are disposed of in a short time and it cannot be excluded that they will not emerge new items capable of bringing the market back into chaos. After all, several institutions have opened some investigations into Bankman-Fried’s workso the question is destined to remain open.

In all of this, what did protagonist Bankman-Fried say besides an apology? On Twitter he traced his mistakes, identifying some more serious than others. The first is having recently underestimated the liquidity that was best left in cash. Before FTX held a dollar amount equal to 24 times the daily average of customer withdrawals, lately it had been much less, 80% of the withdrawal requests received on Sunday. “And when it rains, it rains heavily”wrote amaro.

6) My sense before:

Leverage: 0x
USD liquidity ready to deliver: 24x average daily withdrawals

Actual:

Leverage: 1.7x
Liquidity: 0.8x Sunday’s withdrawals

Because, of course, when it rains, it pours. We saw roughly $ 5b of withdrawals on Sunday – the largest by a huge margin.

– SBF (@SBF_FTX) November 10, 2022

Then he says he was wrong to communicate little. “I’m sorry, I got absorbed in things to do and I haven’t updated you enough”, and the justification thatto be honest, it holds quite little. “And here we are. That sucks, and it depends on me “. Before reiterating another time – not the last – that “I’m sorry”. Yet Bankman-Fried is not the last of the new onesis a thirty year old crypto billionaire which in 2021 had managed to enter the Under 30 Finance list by Forbes.

13) Because at the end of the day, I was CEO, which means that * I * was responsible for making sure that things went well. * I *, ultimately, should have been on top of everything.

I clearly failed in that. I’m sorry.

– SBF (@SBF_FTX) November 10, 2022

He is (or was he?) Considered one of the most important figures in the sector, with an estimated assets of between 20 and 25 billion dollars, largely dependent on the fate of Alameda and FTX (valued at 32 billion in January, among the Investors also include BlackRock), which now, however, really risk bankruptcy. “We are doing everything possible to find liquidity“he wrote before quoting generically “some players we are in talks with” after the farewell of Binance which worsened what remained to be worse.

“Every penny – promises, with the tone of someone who has already filed for bankruptcy – it will go to users, then to investors, then to employees who have done their best for their careers and that I’m not responsible for any of this *** “, he explains before adding asking for confidence that his priority for FTX and Alameda is transparency. From now on.

11/11 at 16:20

FTX like Lehman Brothers. The hope, not only of those who have invested in cryptocurrencies, is that the similarities stop at recall of Chapter 11 of the American bankruptcy code, and that the market does not fall victim to the contagion effect with which Lehman Brothers in 2008 overwhelmed the world economy. At the time of writing, the main cryptocurrencies turn red again, after yesterday’s rise, but do not collapse.

It will be necessary to understand in a market dominated by moods if and for how long they can keep after the announcement via Twitter by FTX to use Chapter 11, ie the assisted bankruptcy, and the possible ripple effect that everyone dreads. Moreover, our feeling of yesterday was clear: the thirty year old Bankman-Fried he spoke as if he had already filed for bankruptcy, and in fact it was a matter of hours before that resign as CEO and at the same time asked for the start of the bankruptcy procedure.

Chapter 11 is the appropriate solution to give the FTX Group the opportunity to assess its situation and develop a process to maximize restraint for stakeholders – reads the release given to Twitter by the CEO who succeeds Bankman-Fried to manage the failure. The FTX Group has valuable resources that can only be effectively administered in an organized joint process.

I want to assure every employee, customer, creditor, contracting party, shareholder, investor, government authority and all interested parties that we will conduct this effort diligently, comprehensively and transparently. Stakeholders should understand that events have been fast moving and the new team has only recently been engaged. Interested parties are expected to review the materials filed with the proceedings in the coming days for more information.

Bitcoin and Ethereum, at the moment, seem to hold up after the low of an hour ago. But the nervous and sudden reactions of crypto, these days, we have made the call.

Credits opening image: velivinki.