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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.

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Twenty warnings for Sir Keir Starmer from new deputy leader Lucy Powell

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Twenty warnings for Sir Keir Starmer from new deputy leader Lucy Powell

Labour’s new deputy leader Lucy Powell promised to be Sir Keir Starmer’s ally.

Yet in her victory speech she criticised his government and its record no fewer than 20 times. And told him to raise his game, or else.

Politics live: Follow for updates as Labour names new deputy leader

Here’s what she said – and what she meant:

  1. “Division and hate are on the rise. Discontent and disillusionment widespread.” What she meant: The Labour government has been a huge disappointment.
  2. “The desire for change is impatient and palpable.” What she meant: You’ve had 16 months to deliver change – voters are saying, “Get on with it”.
  3. “We have to offer hope, to offer the big change the country’s crying out for.” What she meant: Stop tinkering. Get more radical. You’ve got a huge Commons majority, after all.
  4. “We must give a stronger sense of purpose, whose side we’re on and of our Labour values and beliefs.” What she meant: We’re not doing enough for working people or tackling inequality.
  5. “People feel that this government is not being bold enough in delivering the kind of change we promised.” What she meant: Our voters are deserting us because they don’t see change.
  6. “I’ll be a champion for all Labour values and boldness in everything we do.” What she meant: Watch out! I’m going to hound you and hold your feet to the fire!
  7. “We won’t win by trying to out-Reform Reform, but by building a broad progressive consensus.” What she meant: Stop the lurch to the Right on immigration. We’re better than that.
  8. “It starts with wrestling back the political megaphone and setting the agenda more strongly.” What she meant: We need to sharpen up our communication and selling our message.
  9. “We’ve let Farage and his ilk run away with it.” What she meant: The Reform UK leader is running rings round us in communicating and campaigning. We’re too sluggish and flat-footed.
  10. “For too long the country and the economy has worked in the interests of the few and not the many.” What she meant: Winter fuel payment cuts were a disaster and the two-child benefit cap has to go.
  11. “Trickle down economics hasn’t worked.” What she meant: No more tax cuts for the rich. It’s time for a wealth tax, for example, to redistribute wealth.
  12. “Life has just got harder and harder, less and less secure in work, in housing, in making ends meet.” What she meant: We’re failing to tackle the cost of living crisis and housing shortages.
  13. “The deep-seated inequalities that have widened in wealth in regions in class in health need fundamentally redressing.” What she meant: We’re failing to look after our “red wall” voters.
  14. “Re-unite our voter coalition and re-unite the country.” What she meant: Start governing for everyone, urban and rural, rich and poor, North and South. Stop neglecting poorer regions.
  15. “We need to step up.” What she meant: For goodness sake, sort out the chaos in 10 Downing. Stop blaming aides and civil servants and sacking them. Get a grip!
  16. Members and affiliates “don’t feel part of the conversation or party of the movement right now. And we have to change that.” What she meant: Stop ignoring and alienating activists, MPs and unions.
  17. “Unity and loyalty comes from collective purpose, not from command and control.” What she meant: Stop the control freakery in parliament and party management. It’ll backfire.
  18. “Debating, listening and hearing is not dissent. It’s all strength.” What she meant: Listen to your backbenchers and stop suspending them when they vote against policies like welfare cuts.
  19. “As your deputy, my commitment is to change the culture.” What she meant: I’m going to stand up for rebels and critics and force you to ditch the control freakery and bad decisions.
  20. “At the election 16 months ago the British people voted for change. I’m here to do everything I can to make that change a reality.” What she meant: Raise your game, or else!

Read more from Sky News:
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China ‘enemy’ reference removed from witness statement

She said it all with a smile, but there was menace there.

As deputy leader, Lucy Powell was always going to be a critical friend. So there you go, prime minister. Here’s 20 things you need to do for her to be more friend than critic.

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Who is Labour’s new deputy leader Lucy Powell and what does she stand for?

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Who is Labour's new deputy leader Lucy Powell and what does she stand for?

Lucy Powell has been elected as the deputy leader of the Labour Party.

But who is she and what does she stand for?

Powell began her career in politics working for Labour MPs Glenda Jackson and Beverley Hughes.

She then worked for a pro-EU campaign group.

After that, she ran Ed Miliband’s successful Labour leadership campaign and was his deputy chief of staff until she was elected as the MP for Manchester Central in 2012.

She has been at the forefront of Labour politics for over a decade, serving under Ed Miliband, Jeremy Corbyn and Keir Starmer.

After Labour won the last general election, she was appointed as the leader of the House of Commons in Starmer’s cabinet.

But last month she was sacked in the cabinet reshuffle and came to be seen as the anti-Starmer candidate.

During the deputy leadership campaign, Powell promised to “provide a stronger, more independent voice” for members of the Labour Party.

And in her acceptance speech, she said the government hadn’t been bold enough, and that it needed to step up.

So how much of a problem is she going to be for Keir Starmer?

Her new role – and being outside the cabinet – means she will be free to criticise the government, which could make life more difficult for the prime minister.

Read More:
Lucy Powell named Labour’s new deputy leader
Powell will take a ‘submarine approach’ – for now

Powell has been outspoken about her desire for the government to lift the two child benefit cap – and also called for the country to work for the many and not the few – a Corbyn-era slogan – and that Labour must stop handing the megaphone over to Reform and letting them run away with it.

Starmer will be conscious that an MP he sacked not long ago is now in a powerful role able to speak freely and attack his decisions.

But Powell is not free from her own controversies.

In May, Lucy Powell called grooming gangs a dog whistle issue – something she later had to clarify after it caused outrage among campaigners and opposition parties.

She also vocally defended Labour’s unpopular cut to winter fuel allowance while in cabinet, before the government then U-turned on the policy – she then criticised the proposed welfare cuts after she was sacked from government.

Powell insists she wants to help Keir Starmer, providing constructive criticism and a voice for Labour members.

But will Keir Starmer see it that way?

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Tax hike could lead to higher food prices, supermarkets warn

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Tax hike could lead to higher food prices, supermarkets warn

The UK’s largest supermarkets are calling on the chancellor to exclude stores from a new business rates surtax, warning that shoppers will bear the brunt of higher prices.

Tesco, Sainsbury’s, Marks & Spencer, Waitrose, Morrisons, Asda, Aldi and Lidl are among the stores that have signed a letter addressed to Rachel Reeves, arguing that easing taxes on grocers would help curb food inflation.

Industry group the British Retail Consortium (BRC), which organised the letter, said large shops could face higher business rates if included in the government’s proposed surtax on properties valued at more than £500,000.

Smaller high street firms are expected to benefit from reduced business rates under the government’s plans.

“If the industry faces higher taxes in the coming Budget – such as being included in the new surtax on business rates – our ability to deliver value for our customers will become even more challenging, and it will be households who inevitably feel the impact,” the letter reads.

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Chancellor faces tough budget choices

“Large retail premises are a tiny proportion of all stores, yet account for a third of retail’s total business rates bill – meaning another significant rise could push food inflation even higher.”

The supermarkets are asking Ms Reeves to “address retail’s disproportionate tax burden”, saying that doing so would “send a strong signal of support for the industry and of the government’s commitment to tackling food inflation”.

More on Rachel Reeves

The chancellor is widely expected to raise taxes after bleak economic forecasts and a string of reversals on welfare cuts, which have made it harder for her to stick to her borrowing limits.

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Helen Dickinson, the BRC’s chief executive, said: “Supermarkets are doing everything possible to keep food prices affordable, but it’s an uphill battle, with over £7 billion in additional costs in 2025 alone.

“From higher national insurance contributions to new packaging taxes, the financial strain on the industry is immense.”

The Treasury has been contacted for comment.

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