On Monday, Sam Bankman-Fried, the chief executive of the cryptocurrency exchange FTX, took to Twitter to reassure his customers: “FTX is fine,” he wrote. “Assets are fine.”
On Friday, FTX announced that it was filing for bankruptcy, capping an extraordinary week of corporate drama that has upended crypto markets and sent shock waves through the industry. In a statement on Twitter, the company said that Mr. Bankman-Fried had resigned, with John J. Ray III, a corporate turnaround specialist, taking over as chief executive.
The speed of FTX’s downfall has left crypto insiders stunned. Just days ago, Mr. Bankman-Fried was considered one of the smartest figures in the crypto industry, an influential figure in Washington who was lobbying to shape crypto regulations. And FTX was widely viewed as one of the most stable and responsible companies in the freewheeling, loosely regulated crypto industry.
Now, the bankruptcy has set up a rush among investors and customers to salvage funds from what remains of FTX. A surge of customers tried to withdraw funds from the platform this week, and the company couldn’t meet the demand. The exchange owes as much as $8 billion, according to people familiar with its finances.
FTX’s collapse has destabilized the crypto industry, which was already reeling from a crash in the spring that drained $1 trillion from the market. The prices of the leading cryptocurrencies, Bitcoin and Ether, have plummeted. The crypto lender BlockFi, which was closely entangled with FTX, announced on Thursday that it was suspending operations as a result of FTX’s collapse.
The company’s demise has also set off a reckoning over risky practices that have become pervasive in crypto, an industry that was founded partly as a corrective to the type of high-risk financial engineering that caused the 2008 economic crisis.
“I’m really sorry, again, that we ended up here,” Mr. Bankman-Fried said on Twitter on Friday. “Hopefully this can bring some amount of transparency, trust, and governance.”
The bankruptcy filing marks the start of what will probably be months or even years of legal fallout. The exchange was already the target of investigations by the Securities and Exchange Commission and the Justice Department. Investigators are focused on whether the company improperly used customer funds to prop up Alameda Research, a trading firm that Mr. Bankman-Fried also founded.
According to a bare-bones legal filing in the U.S. Bankruptcy Court in Delaware, FTX has assets valued between $10 billion and $50 billion, with the size of its liabilities in the same range. The company has more than 100,000 creditors, the filing said.
The bankruptcy is a stunning fall from grace for the 30-year-old Mr. Bankman-Fried, who cultivated a reputation as a boy genius with a host of endearing quirks, including a habit of sleeping on a beanbag at the office. At one point, he was one of the richest people in the industry, with an estimated fortune of $24 billion. He hobnobbed with actors, professional athletes and former world leaders.
Mr. Bankman-Fried’s problems started over the weekend, when the chief executive of Binance, the largest crypto exchange, suggested publicly that FTX might be on shaky financial footing. A rush of customers tried to withdraw their crypto holdings from the platform, and FTX was unable to meet the demand. [Continue reading…]