It took just eight days to move from rumours to a defunct FTX cryptocurrency exchange. And casualties along the way. Here is a rundown of how the FTX crypto exchange saga started, why Binance refused to bail it out, and how to avoid being collateral damage in such scenarios.
How it started
On the second day of November 2022, a large amount of FTX-owned token, FTT, was being held by Alameda Research, another firm owned by FTX exchange founder Sam Bankman-fried or SBF as he’s commonly known in the crypto circles.
Three days later on November 5, FTT tokens worth close to $600 million were captured leaving FTX to Binance, raising the question as to who or why someone would move 17% of all FTT coins in circulation.
At the time, Binance CEO Changpeng Zhao or CZ acknowledged that the amount was part of an investment in FTX. A day later, Alameda Research executive officer Caroline Ellisson came out to address fears that the company was in a huge financial hole since it hedged mostly on its FTT holding, according to its financial books.
Later, Binance disclosed it was going to sell all of its FTT holdings saying it hinged its decision on possibly the bad state of financial affairs at the SBF-owned firms. Although Ellison offered to absorb all tokens that CZ intended to sell, the Binance executive choose the open market.
It Spills Over to the Entire Crypto Market
On November 7, panicked-gripped FTX exchange users started moving their assets off the platform before they started experiencing withdrawal delays but the exchange assured them that everything was in control.
According to SBF, FTX doesn’t divert customer funds into other investments leaving enough to satisfy withdrawals. He added that the exchange has $100 billion in its reserves but asked the Binance executive’s hand in quelling the fire.
Zhao, Bankman-Fried, and Ellison’s utterances coupled with commentators’ analysis continued to slowly unmask the FTX crypto exchange saga which spilt over to the price of the FTX Token. Within hours, the token’s price moved from $22 to 15 on November 8. On November 10, the price had spiralled to below $3.
On November 8, the FTX executive admitted that his exchange was going through a “liquidity crunch.” Zhao revealed that there are ongoing discussions to purchase the FTX cryptocurrency exchange.
Website Goes Dark But Resurrects Without Withdrawals
However, he clarified that the deal would only go through after conducting due diligence. Hours later, it disclosed that it cannot acquire the exchange due to, among other things, “reports regarding mishandled customer funds” and rumours that US financial watchdogs are onto FTX’s tracks.
The following day, the exchange’s website went dark together with that of Alameda. Later in the day, the website resurrected but that’s when the FTX exchange admitted that it could no longer process withdrawals.
The website included a warning to users not to deposit funds on the platform. In some social media platforms like Telegram, the exchange disclosed that they don’t know when withdrawals will be restored.
On November 10, the exchange tweeted that they have “reached an agreement with Tron” that will enable FTX users to swap their BTT, SUN, HT, and TRX tokens from the exchange to “external wallets.”
How to Avoid the FTX Crypto Exchange Saga in Future
· Keep little amount of funds on exchanges
Self-custody wallets come in handy at a time like this. Funds on exchanges are outside your control and an exchange can decide to block withdrawals at any time. Sometimes without prior notice.
· Keep your ear on the ground
Simply put, seek to have a general overview of what’s happening in the industry. That way, you can know if there are scandal likely to affect you in any way.
· Don’t ignore even the slightest rumours
Most FTX users would have withdrawn funds on November 2 or 3 when news of Alameda holding huge amounts of FTT first came out. But most choose to see how it would play out. Now they can’t move their funds out. It’s good to move your funds to another wallet until everything cools off since returning them will only cost you a meagre amount.
In conclusion, the FTX crypto exchange saga is yet to unfold fully since US regulators haven’t denied or acknowledged whether they’re investigating the exchange. Also, it’s unclear whether it’ll declare insolvency, and there’s no clear timeline as to when all withdrawals will resume. Until then, we wait and see.
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