Connect with us

Published

on

FTX collapse: Unraveling the cryptocurrency crisis of November 2022

In November 2022, the cryptocurrency world was rocked by the collapse of FTX, one of the largest cryptocurrency exchanges. The collapse was triggered by a liquidity crisis at FTX, which was caused by a combination of factors, including mismanagement of customer funds and risky trading practices by FTX’s sister company, Alameda Research.

The collapse of FTX had a ripple effect across the crypto market, causing a sharp decline in cryptocurrency prices, a drain of liquidity and a loss of confidence in the crypto industry. It also raised serious questions about the safety and security of customer funds on cryptocurrency exchanges. The crypto industry’s lack of risk management standards was exposed through the crisis. 

FTX has filed for bankruptcy, revealing a debt of over $3 billion to its creditors. Additionally, the exchange is unable to locate approximately $8.9 billion worth of customer assets. The exact amount of money lost by customers is difficult to determine, as some customers may have been able to withdraw their funds before the exchange suspended withdrawals. However, it is estimated that customers lost billions of dollars in the FTX crash.

The collapse of FTX caused a sharp decline in cryptocurrency prices. The total market capitalization of the crypto market fell from over $1 trillion in November 2022 to under $800 billion in December 2022. This represents a market collapse of over $200 billion in dollar terms.

Sam Bankman-Fried’s strategic path

SBF saw an opportunity to create wealth at an unparalleled pace by combining the ICO method of token creation and subsequent leveraging.

SBF saw an opportunity to profit by creating a new cryptocurrency exchange that would exploit the shortcomings of existing exchanges. Bankman-Fried began by setting up a quantitative trading firm called Alameda Research. 

Alameda Research used sophisticated algorithms to trade cryptocurrencies on a variety of exchanges. Alameda Research was very successful, and it quickly became one of the largest cryptocurrency traders in the world.

In 2019, Bankman-Fried launched FTX, a cryptocurrency exchange designed to be more user-friendly and efficient than existing exchanges. FTX also offered a number of features that were not available on other exchanges, such as margin trading and derivatives trading. However, none of the regulatory controls typically needed by mainstream financial services trading platforms were addressed.

Relationship between FTX and Alameda Research

FTX and Alameda Research were closely linked. Bankman-Fried and Caroline Ellison were the CEOs of FTX and Alameda Research respectively. However, Bankman-Fried controlled a majority of the shares in both companies. Alameda Research also used FTX as its primary exchange.

The close relationship between FTX and Alameda Research allowed Bankman-Fried to engage in a variety of fraudulent activities, including:

  • Misappropriating customer funds: Bankman-Fried transferred customer funds from FTX to Alameda Research without the customer’s consent. He used these funds to cover Alameda Research’s losses and to fund his own lavish lifestyle.
  • Manipulating the cryptocurrency market: Alameda Research used its large trading volume to manipulate the prices of cryptocurrencies on FTX. This allowed Bankman-Fried to profit from insider trading.
  • Offering fraudulent financial products: FTX, under Bankman-Fried’s leadership, offered unregulated financial products like margin and derivatives trading. This lack of oversight allowed him to defraud customers by selling these products without disclosing the associated risks.

FTX scam and Alameda gap unveiled

The scam began to unravel in November 2022 when it was revealed that Alameda Research held a large position in FTT, the native token of FTX. 

The report sparked a sell-off of FTX Token (FTT), which caused the token’s price to plummet. It also raised concerns about the financial health of Alameda Research and FTX. This led to a liquidity crisis at FTX, as customers rushed to withdraw their funds from the exchange. 

FTX was unable to meet the withdrawal demands, and it was forced to suspend withdrawals. FTX also filed for bankruptcy on Nov. 11, 2022. The collapse of FTX had a devastating impact on the crypto market. 

In November, a significant decrease in liquidity within the crypto market was coined as the “Alameda gap” by blockchain data firm Kaiko. This term emerged due to the notable role played by Alameda Research, the largest market maker during that period. 

The Alameda Gap represented a substantial decline in available liquidity, impacting trading volumes and market stability. This phenomenon underscored the influence of major market participants and highlighted the intricate dynamics that govern cryptocurrency markets. 

While the FTX episode may have been the last domino to fall in a series of bankruptcies that were filed during 2022, it was easily the biggest event of the year, and it put the industry under a legal and regulatory microscope.

The Bankman-Fried trial

SBF was arrested in the Bahamas on Dec. 12, 2022, after United States prosecutors filed criminal charges against him. He was extradited to the U.S. in January 2023 and went on trial in October 2023.

The arrest and trial of SBF was a major development in the crypto industry. It was the first time that a major crypto founder had been arrested and tried on criminal charges. Bankman-Fried was charged with seven counts of fraud and conspiracy. 

The key witnesses for the prosecution were:

  • Caroline Ellison, Bankman-Fried’s ex-girlfriend and the former CEO of Alameda Research
  • Nishad Singh, former FTX engineering director
  • Gary Wang, co-founder of FTX

Ellison, Singh and Wang all pleaded guilty to multiple charges and cooperated with the prosecution. They testified that Bankman-Fried knowingly misled investors and customers about the financial health of FTX and Alameda Research. They also testified that Bankman-Fried used FTX customer funds to cover losses at Alameda Research and to fund his own lavish lifestyle.

Bankman-Fried was found guilty of all seven charges on Nov. 2, 2023. He faces a maximum of 115 years in prison. Bankman-Fried denied all of the charges against him. He said that he made mistakes but that he did not commit any crimes.

The seven charges against Sam Bankman-Fried

Post-FTX reforms in the cryptocurrency industry

There is often a silver lining with black swan events. A black swan event is one that is impossible to predict and has severe consequences. In the wake of the FTX and Alameda Research scam, several things have gained momentum, and the industry has focused on getting itself regulated. Across the world, regulators and crypto firms have worked collaboratively and consciously to protect investors.

The following are some notable developments in the crypto industry post the FTX crisis:

  • Increased regulation: Governments worldwide have started to develop and implement comprehensive regulations for the crypto industry. These regulations would focus on protecting investors and preventing fraud.
  • Transparency: Cryptocurrency exchanges have come forward and offered transparency around their operations and financial condition through proper documentation and risk management practices. This helps investors make informed decisions about where to invest their money.
  • Audits: Cryptocurrency exchanges are being regularly audited by independent auditors. This helps to ensure that the exchanges are operating honestly and that customer funds are safe.

Investors also need to be vigilant and do their own research before participating in any cryptocurrency exchange-related activities. Investors should look for exchanges that are regulated, transparent and have a good reputation.

Continue Reading

Politics

Hard power is the world’s real currency once again – talking tough on defence won’t be enough

Published

on

By

Hard power is the world's real currency once again - talking tough on defence won't be enough

Remarkable – and relatively speaking a blessing – that the wake-up call for Britain to take defence seriously again did not come in the form of a military attack on UK soil, but instead was triggered by the verbal assault of Ukraine’s wartime leader by a sitting US president.

The lack of any physical destruction on British streets, though, should fool no one in government or wider society that the framework of security that has protected the country and its allies since the end of the Second World War is not at best cracked and at worst shattered.

Instead, check out one of the latest posts by Elon Musk, Donald Trump’s “disrupter-in-chief”.

He used his social media site X to say “I agree” with a call for the United States to leave NATO – a transatlantic alliance, and the bedrock of European security, that the new administration had until now continued to back at least in public.

It is yet another example of escalating hostility from the new Trump White House – which has sided with Russia against Ukraine, lashed out at its European partners over their values, and even suggested absorbing Canada as the 51st American state.

The alarming mood-change by a nation that is meant to be a friend surely demands an equally dramatic shift in approach by NATO’s 30 European allies and their Canadian partner.

Rather than stating the obvious – that American support can no longer be taken for granted – they should instead be actively adapting to a world in which it fundamentally no longer exists.

Please use Chrome browser for a more accessible video player

When Starmer met Zelenskyy: What happened?

Make no mistake, this would be a daunting and humbling prospect – perhaps too awful even to contemplate, in particular for the UK, which has tied itself militarily so closely to the US for pretty much everything from intelligence sharing and technology to nuclear weapons.

Britain is not alone. All European militaries, as well as Canada, to a greater or lesser extent rely heavily on their more powerful American partners.

Breaking that dependency would require a rapid expansion in military capabilities and capacity across the continent, as well as a huge effort to build up the defence industrial base required to produce weapons at scale and exploit emerging technologies.

Sir Keir Starmer – who is hosting a Ukraine summit of allies on Sunday – has rightly adopted the UK’s natural position of leadership in Europe in the wake of Donald Trump’s extraordinary hostility towards Volodymyr Zelenskyy. He gave the embattled Ukrainian president a warm embrace on Saturday when the two met at Downing Street.

Britain is one of Europe’s two nuclear-armed states, a powerful voice within NATO, and a permanent member of the United Nations Security Council.

Please use Chrome browser for a more accessible video player

All the times Zelenskyy thanked the US

But talking tough on defence and the need to support Ukraine as the US steps back is no longer enough in a world where hard power is the only real currency once again.

A pledge by the prime minister to increase defence spending to 2.5% of national income by 2027 and to 3% in the next parliament is of course a step in the right direction.

Yet unless it is accompanied by much greater speed and urgency coupled with a genuinely generational shift in the entire country’s approach to national security then it will go down in history as the headline-grabbing but otherwise empty gesture of a government that has forgotten what it means to be ready to fight wars.

Anneliese Dodds, who quit as international development secretary on Thursday over the prime minister’s plan to fund his increase in defence spending with a raid on the overseas aid budget, summed up the challenge well in her resignation letter.

She wrote that she supported the plan to lift the defence budget but said even 3% “may only be the start, and it will be impossible to raise the substantial resources needed just through tactical cuts to public spending”.

She added: “These are unprecedented times, when strategic decisions for the sake of our country’s security cannot be ducked.”

Read more:
Starmer asks leaders to unite ahead of Ukraine summit
Israel agrees to Gaza ceasefire extension

Please use Chrome browser for a more accessible video player

Ukrainians react to White House meeting

Ms Dodds is right.

It is no longer good enough to treat defence, deterrence and wider national resilience as a niche subject that is delivered by an increasingly small, professional military.

Rather, it should once again be at the heart of the thinking of all government departments – from the Treasury and business to health and education – led by the prime minister, his national security adviser and the cabinet secretary.

This is not something new. It was normal during the Cold War years when, after two world wars, the whole country was acutely aware of the need to maintain costly but credible armed forces and a population that was ready to play its part in a crisis.

Continue Reading

Politics

UK to defend Ukraine peace deal with ‘coalition of willing’, Starmer says

Published

on

By

UK to defend Ukraine peace deal with 'coalition of willing', Starmer says

Sir Keir Starmer has suggested a coalition of European allies could step up and defend a potential deal for Ukraine to “guarantee the peace”.

The prime minister indicated some EU nations could be prepared to increase defence spending to protect any peace deal that is agreed between Ukraine and Russia.

But speaking at summit of EU leaders in central London, Sir Keir acknowledged that no such coalition had yet been formed and that “not every nation will feel able to contribute”.

Instead, he said “those willing” – though he did not state which countries this included – would “intensify planning now with real urgency”.

In a sign this could mean troops from member states being sent to Ukraine, he added: “The UK is prepared to back this with boots on the ground and planes in the air, together with others. Europe must do the heavy lifting.”

Continue Reading

Politics

‘We can still trust the Americans’, minister says despite breakdown between Trump and Zelenskyy

Published

on

By

'We can still trust the Americans', minister says despite breakdown between Trump and Zelenskyy

The UK can still trust the US with Ukraine’s future despite the bad-tempered clash at the White House between Donald Trump and Volodymyr Zelenskyy, a minister has said.

Cabinet Office minister Nick Thomas-Symonds told Sky’s Sunday Morning with Trevor Phillips there was “no ambiguity” over whether the US continued to be an important ally for Britain despite the unpleasant scenes that unfolded in the Oval Office on Friday.

There are concerns among Western leaders that the exchange – which resulted in Mr Zelenskyy leaving empty-handed and without having signed an important minerals deal to continue US support – could result in the White House withdrawing aid for Ukraine’s war effort.

Politics latest: Starmer hosts Ukraine war and security summit

But Mr Thomas-Symonds, who is also minister for the constitution and European Union relations, said he believed we could “still trust the Americans”.

And he said that in the event the US did pull financial support for Ukraine, the UK would “continue to be an honest broker” and “bring the different parties together”.

Echoing the US’s president’s language, he added: “We will also continue to make the case that peace is made from a position of strength, not a position of weakness.

More on Keir Starmer

“So, it remains critical to put Ukraine in the strongest possible position.”

On whether Britain could still trust the Americans, Mr Thomas-Symonds replied: “Yes, I do believe we can trust the Americans.

“We do have an ally in the United States that we can trust,” he continued. “There’s no ambiguity about that.”

Sir Keir Starmer’s desire to act as bridge between the US and Europe will be tested as he hosts a number of EU leaders for a summit in London.

Present will be the leaders of Italy, France, Germany, the Netherlands, Poland, Spain, Finland, Denmark, Norway, the Czech Republic and Romania. Canada and Turkey will also attend.

The PM’s role as a peacemaker takes on greater significance following the breakdown in relations between Mr Trump and Mr Zelenskyy that unfolded in front of the world’s TV cameras.

In the aftermath of the fallout, Sir Keir phoned Mr Zelenskyy and invited him to Downing Street on Saturday ahead of today’s summit in a show of support for Ukraine.

Please use Chrome browser for a more accessible video player

Blow-by-blow: Inside Zelenskyy and Trump’s clash

He also phoned the US president, saying his “driving purpose” was to “bridge this and get us back to the central focus”.

Turning to the scenes at the Oval Office on Friday, Mr Thomas-Symonds admitted he had “never seen anything quite like that”.

“Obviously that is not how it should have happened.”

His sentiments were echoed by shadow foreign secretary Priti Patel, who said she was “absolutely aghast” at “the whole spectacle” which saw Mr Trump accuse the Ukrainian president of “disrespecting” the United States and “gambling with World War Three”.

Read more:
Hard power is the world’s real currency once again

Starmer’s position as Trump’s new best friend will be tested

In a sign of how badly the meeting went, the minerals deal the pair had expected to sign – which would have established a new fund for the US to invest in Ukraine’s minerals, rare earth materials and other valuable natural resources – was put on ice.

Mr Trump viewed the minerals transaction as a fair way to recover the billions of dollars that the US has given Kyiv in its war effort and as necessary to guarantee further US military support for Ukraine.

Ms Patel said the scenes at the White House were “unedifying and undignified”.

“When we look at President Zelenskyy…I think he’s a hero,” she went on.

“He’s an absolute hero in the way in which he stood up to authoritarianism. He’s fighting for the sovereignty of his country.

“He also know when the going gets tough. You keep your disagreements not in front of cameras, but you keep them private. So, you know, we are where we are.”

Continue Reading

Trending