The Shocking Overnight Collapse of FTX

Tuesday was the craziest day in crypto’s history. Think we’re exaggerating? Take it from crypto OG and Messari founder Ryan Selkis.

In the span of hours, powerhouse crypto exchange FTX went from being the exchange behemoth that competitors were nervous about, to “oh crap, what’s going on here?”, to pausing withdrawals, to potentially being acquired by rival exchange Binance, to going straight up insolvent.

Jaw on the floor.

Let’s try to make some sense of what went down.

A Concerning Balance Sheet

The beginning of the end was a November 2nd report from CoinDesk.

In it, CoinDesk described how much of Alameda Research’s balance sheet is held in FTX’s FTT token. Considering that Alameda is FTX CEO Sam Bankman-Fried’s trading firm, this raised a whole bunch of red flags.

A trading firm whose assets are primarily tokens created by its sister exchange? Doesn’t exactly inspire confidence.

Consider Binance CEO Changpeng Zhao (CZ) among the skeptical parties.

Binance Death Blow

Binance, an early investor in FTX, held $2 billion in FTT tokens. CZ, supposedly concerned about the CoinDesk report and pissed off from SBF flexing his DC connections, tweets that Binance will be liquidating their FTT.

Naturally, this causes fear among FTT holders, as having $2 billion worth of a token being sold at once would not be great for its price. So, investors respond by attempting to sell before Binance does. In other words, a good old-fashioned bank run.

For Alameda, a bank run on FTT is the worst possible outcome, as remember, CoinDesk reported that a huge amount of their balance sheet was in FTT. Suddenly, the majority of their balance sheet was cratering downward.

Investors, putting two and two together, quickly realized that a dead Alameda would most likely mean a dead FTX. Thus, a mad scramble to get off FTX began. It wasn’t long before FTX had a full-blown liquidity crisis and had to pause withdrawals.

This situation is now looking awfully similar to Celsius.

After a few hours of Crypto Twitter panic, SBF announced that FTX had a non-binding agreement to be acquired by Binance. But as we found out literally minutes ago, the deal is officially off.

According to Binance:

Ouch…

While details are, of course, still unraveling… Not even Binance – the world’s largest exchange – wants to touch this bag of hot, seemingly fraudulent, and debt-ridden, garbage we now call FTX.

The Consequences

This story is constantly evolving and seems to have a never-ending amount of layers, but for now, let’s recap some of the consequences of FTX’s demise for crypto.

• SBF is no longer a billionaire

• FTT is down ~90%

• FTX-backed coin SOL is down 60%

• Most major coins, including BTC & ETH, down ~20%

• Robinhood (HOOD), which SBF owned 7.6% of is down more than 30% since Monday

• The $2 billion FTX had raised from VCs (including Ontario Teacher’s Pension) has likely gone up in smoke

We also don’t know how far SBF/FTX/Alameda’s tentacles go…

They’ve invested billions of dollars into other crypto/fintech companies, donated millions to charitable causes (and politicians), and bailed out multiple multi-billion dollar companies. Speaking of bail-outs, in June, CoinSnacks commented:

The Future

But, okay… what does this actually mean for you and your money, you are probably asking yourself?

To be blunt, in the short-term, things are going to be rough. Crypto prices will be volatile, there will be a lot of fear in the markets, and we expect politicians to get even sharper toward crypto.

But in the long-run, there will be winners due to this debacle. So let’s make some predictions.

1. Western, regulated exchanges will gain market share.Investor confidence in offshore, unregulated, exchanges with murky ties have lost a lot of confidence from investors with this debacle. We expect exchanges like Coinbase (COIN), Kraken, and Blockchain, to be major winners in the coming years.

2. Investors will flock to “blue-chip” cryptoassets.Assets such as Bitcoin and Ethereum will once again be seen as relatively safe assets as investors lose confidence in many, riskier tokens.

3. Regulators will come out swingingRegulators are sure to have a “told you so” moment once elections settle down. As in, they’re going to have a lot more gunpowder as crypto bills begin to circulate throughout congress again. As always, let’s just hope they don’t go overboard by stifling domestic innovation going forward.

Taking a Step Back

Since we began writing CoinSnacks in 2017, we have time and time again pounded the table that investors should focus on putting their money in things they can understand (like Bitcoin, Ethereum, and backdoor plays).

We suggested that investors only risk what they are okay with losing in offshore exchanges and tokens that they don’t fundamentally have a grasp with. It’s worth highlighting what we send to every investor that signs up for CoinSnacks: