FTX: a story of disaster, but is it unique?

FTX filed for bankruptcy. The second largest crypto exchange in the world seemed like a successful business two weeks ago. Now the new driver John J. Ray III calls it the biggest failure he has ever seen in his career. What happened?

FTX was a crypto platform where a lot of money was traded on a daily basis. That crypto exchange has incurred all kinds of debts together with subsidiary Alameda Research. When that debt could no longer be paid, FTX collapsed.

“Everyone assumed it was a successful company,” says Peter Slagter, an expert in the field of digital currencies. Now it turns out it’s a big mess. Ray III said in a statement Thursday that confidential data was not handled properly. Also, money from the company was used to buy houses for employees.

How is it getting so out of hand at FTX?

There is a lot of speculation about how this could have come about. Much is still unclear. That is now being investigated. “It’s ironic. Until two weeks ago, FTX founder Sam Bankman-Fried was seen as the ideal son-in-law,” says Slagter.

He often came to Washington precisely to talk with American politicians about stricter regulations for crypto. “Now he himself appears to be corrupt.”Banker-Fried would have shoved in billions to absorb the large losses of FTX and Alameda.
How to avoid this kind of situation?

Something needs to be done about that now. Fortunately, before the abuses at FTX came to light, laws and regulations were already in the works. “A new law is coming in Europe,” the spokesman said. That law goes into effect in 2024.

What are the consequences of the bankruptcy of FTX?

To begin with, this situation affects companies. “It can be compared to an earthquake. During an earthquake, the weakest building collapses first. That was FTX in this case, but it doesn’t stop there. The buildings that surround it – i.e. companies that have something to do with FTX-are also affected.”

Those are, for example, companies that have invested in FTX. Companies that have borrowed a lot of money can then also get into trouble themselves. “It is still unknown how many companies that are.”

For FTX customers, the bankruptcy also has consequences. “For them, it is very much a question of what is left of the money they have deposited,” says Slagter. FTX has been using clients ‘ money for its own purposes. “That money is probably just not there anymore.”What’s left probably won’t reach consumers. They are at the back of the queue of money that must be repaid after this bankruptcy. “They probably won’t get their money back.”