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The crypto winter is getting worse, and FTX is its latest victim.
Less than a year after it boasted a $32 billion valuation, the crypto exchange, owned by Sam Bankman-Fried, faced a « liquidity crunch » that forced it to try to sell itself to rival Binance. After Binance walked away from the deal, citing issues « beyond our ability or control to help, » FTX scrambled to find an infusion of cash elsewhere, but failed.
Consequently, FTX said Friday it had begun Chapter 11 bankruptcy proceedings. Bankman-Fried has also stepped down as CEO.
The fallout is wide-ranging. Contagion fears sprung up last week, fueled by reports of heavy exposure to FTX’s native token on the balance sheet for trading firm Alameda Research, also owned by Bankman-Fried. The value of the overall crypto sector dropped 12% over a day to $911 billion, according to CoinMarketCap. JPMorgan strategists say the FTX debacle could transform the industry.
Here’s what crypto’s latest blowup could mean:
Crypto has famously had little oversight, partly by nature.
« The separation of crypto from the regulator was a design choice, » said David Yermack, the Albert Fingerhut Professor of Finance and Business Transformation and chair of the finance department at NYU’s Stern School of Business.
