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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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Home Office should be split in two to curb migration, former immigration minister Robert Jenrick says

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Home Office should be split in two to curb migration, former immigration minister Robert Jenrick says

Former Tory immigration minister Robert Jenrick has called for the Home Office to be split in two as part of a 30-point plan to curb migration.

Mr Jenrick, who is seen as a potential Conservative leadership contender, has been ramping up pressure on Rishi Sunak over the issue after quitting his government post last year.

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In a report he co-authored for the Centre for Policy Studies (CPS), a centre-right think-tank, the MP for Newark said the government must “undo the disastrous post-Brexit liberalisations” that have “betrayed” the public’s wish for lower immigration.

He proposed a number of policies that should be implemented ahead of the looming general election, including breaking up the Home Office to create a department more focused on border control.

He said voters “deserve a department whose sole mission is controlling immigration and securing our borders”.

The proposals also include capping health and care visas at 30,000, scrapping the graduate route for international students, and indexing salary thresholds for visa routes in line with inflation.

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Mr Jenrick said: “It would be unforgivable if the government did not use the time before the general election to undo the disastrous post-Brexit liberalisations that betrayed the express wishes of the British public for lower immigration.

“The changes we propose today would finally return numbers to the historical norm and deliver the highly selective, highly-skilled immigration system voters were promised.

“These policies could be implemented immediately and would consign low-skilled mass migration to the past.”

Mr Jenrick was the immigration minister between October 2022 and December 2023.

He quit over the government’s inability to get the Rwanda deportation policy off the ground, and has since become one of the Mr Sunak’s loudest critics, particularly on migration.

Official estimates published in November indicated the net migration figure – the difference between the number of people arriving and leaving Britain – reached a record 745,000 in 2022.

The 2019 Tory manifesto promised to bring the “overall number down”.

The intervention comes amid a pessimistic mood with the Conservative Party following a bruising set of local election results.

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Rwanda bill ‘a bucket full of holes’

Many Tories on the right believe caps on legal migration and getting flights to Rwanda in order to “stop the boats” is the best way to give the party a fighting chance at the general election, which the prime minister has admitted he might not win.

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The government is introducing a raft of restrictions in a bid to cut the number of people legally arriving in Britain, including a ban on overseas care workers bringing family dependants to the UK and a drastically hiked salary threshold for skilled workers to £38,700.

A government spokesperson said: “The prime minister and home secretary have been clear that current levels of migration are far too high. That is why the government announced a plan to cut the number of migrants that would have come last year to the UK by 300,000 – the largest reduction ever.

“This plan is working, with the latest statistics showing applications across three major visa categories are down by 24%.

“Our approach is fair – reducing immigration and ensuring businesses invest in and recruit from the domestic workforce, whilst prioritising the overseas workers and students who will contribute significantly to our economy.”

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John Swinney sworn in as Scotland’s first minister

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John Swinney sworn in as Scotland's first minister

John Swinney has been legally sworn in as Scotland’s seventh first minister.

The 60-year-old is now Keeper of the Scottish Seal, also known as the Great Seal, after taking the oath of office and pledging his allegiance to the King.

The seal allows the monarch to authorise official documents without having to sign each one.

As Keeper of the Scottish Seal, Mr Swinney now has the authority to make decisions on behalf of the crown, which effectively means he can lead the country with the support of the Scottish parliament.

John Swinney takes the oath as he is sworn in as First Minister of Scotland and Keeper of the Scottish Seal.
Pic PA
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Mr Swinney taking the oath. Pic: PA

John Swinney takes the oath as he is sworn in as First Minister of Scotland and Keeper of the Scottish Seal, at the Court of Session in Edinburgh. Picture date: Wednesday May 8, 2024.
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Pic: PA

John Swinney stands with the Seals of Scotland as he is sworn in as First Minister of Scotland and Keeper of the Scottish Seal, at the Court of Session in Edinburgh. Picture date: Wednesday May 8, 2024.
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Pic: PA

The ceremony took place at the Court of Session in Edinburgh in front of Scotland’s most senior judge, the Lord President Lord Carloway.

Mr Swinney’s family, including his wife Elizabeth, brother David, and 13-year-old son Matthew, accompanied him to court.

John Swinney poses for a photograph with his wife Elizabeth Quigley and son Matthew, 13, after he was sworn in as First Minister of Scotland and Keeper of the Scottish Seal, at the Court of Session in Edinburgh. Picture date: Wednesday May 8, 2024.
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Mr Swinney with wife Elizabeth and son Matthew. Pic: PA

Speaking to reporters after the ceremony, Mr Swinney said taking the oaths had been an “overwhelming moment” as he spoke of his pride at being first minister and his family’s support.

He said: “I look forward to dedicating my future to serving the people of Scotland.

“It’s an extraordinary opportunity to change lives for the better and I’ll continue to use every moment that’s available to me to do so.

“For my family this is a very abrupt change of our circumstances. We didn’t think this would happening about 10 days ago.”

John Swinney, with his wife Elizabeth Quigley, on the steps of Bute House in Edinburgh, the official residence of the First Minister, after he was voted by MSPs to be Scotland's next first minister, succeeding Humza Yousaf who formally resigned from the post earlier on Tuesday. Picture date: Tuesday May 7, 2024.
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Mr Swinney with his wife Elizabeth Quigley on the steps of Bute House on Tuesday. Pic: PA

Mr Swinney, who has replaced Humza Yousaf as SNP leader, is now expected to begin appointing his cabinet.

A “significant” role has been promised to former finance secretary Kate Forbes, who chose not to run in the SNP leadership race and instead threw her support behind Mr Swinney.

The first minister pledged to devote himself to the job after winning Holyrood’s backing. It came following the SNP leadership race in which he stood unopposed.

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Newly elected leader of the SNP John Swinney, with outgoing FM Humza Yousaf and former FM Nicola Sturgeon. Pic: PA
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Mr Swinney with former first ministers Humza Yousaf and Nicola Sturgeon. Pic: PA

Mr Swinney, who was deputy first minister under Nicola Sturgeon, previously said he is “no interim leader” and intends to lead the SNP beyond the next general and Scottish elections.

He has vowed to focus on the economy, jobs, the cost of living, the NHS, education, public services, and the climate crisis.

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Mr Swinney offers ‘eternal gratitude’ to his wife

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The first minister has confirmed he has no intention of reinstating the Bute House Agreement with the Scottish Greens and will instead take issues on a case-by-case basis with a minority administration of 63 MSPs.

Mr Swinney told opposition parties at the Scottish parliament: “If we want to fund our schools and hospitals, if we want to give our businesses a competitive edge, if we want to take climate action, if we want to eradicate child poverty, if we want to change people’s lives for the better, we have got to work together to do so.”

He also thanked his wife Elizabeth, who has multiple sclerosis (MS), making clear his “profound eternal gratitude” to her for “the sacrifices she is prepared to make” so he could take on the job.

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Tory MP Natalie Elphicke defects to Labour Party

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Tory MP Natalie Elphicke defects to Labour Party

Conservative MP Natalie Elphicke has defected to the Labour Party.

The Dover MP said the change in the Tory Party since she entered parliament in 2019 “has been dramatic and cannot be ignored”.

She hit out at the “broken promises of Rishi Sunak’s tired and chaotic government”, adding that Labour “looks to the future – to building a Britain of hope, optimism, opportunity and fairness”.

Mrs Elphicke is the second Tory MP to move to the Labour Party in 11 days after former minister Dan Poulter defected to the opposition.

Part-time NHS doctor Dr Poulter said he could no longer look his NHS colleagues and patients in the eye and remain a Conservative.

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Tory MP crosses the floor to Labour benches

Mrs Elphicke “crossed the floor” to the Labour benches moments before Prime Minister’s Questions started on Wednesday at midday, with Tory MPs seen pointing at her.

She previously announced she will not be standing in the next general election.

Sir Keir welcomed her to the party in his opening remarks at PMQs.

In a statement announcing her decision, she said the key deciding factors for switching have been “housing and the safety and security of our borders”.

She said the Conservative Party in 2019 “occupied the centre ground of British politics” and was about “building the future and making the most of the opportunities that lay ahead for our country”.

“Since then, many things have changed,” she added.

“The elected prime minister was ousted in a coup led by the unelected Rishi Sunak.

“Under Rishi Sunak, the Conservatives have become a byword for incompetence and division.

“The centre ground has been abandoned and key pledges of the 2019 manifesto have been ditched.”

She said the Labour Party has also “changed out of all recognition” since then, moving on from Jeremy Corbyn and “under Keir Starmer, occupies the centre ground of British politics”.

“It has accepted Brexit and its economic policies and defence policies are responsible and can be trusted,” she said.

Former Conservative MP Charlie Elphicke, with his wife, MP for Dover Natalie Elphicke
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Natalie Elphicke with her ex-husband and former Tory Dover MP Charlie Elphicke, who was imprisoned for two years for sexual assault

Mrs Elphicke has previously been highly critical of Sir Keir, hitting out at him for “ignoring the small boats crisis” in January 2023.

In April last year she wrote an article saying voters should not trust Labour on immigration – one of the key factors she said she was defecting for.

The arrival of asylum seekers in small boats is a major issue in her constituency, with most stepping onto British soil in Dover.

Mrs Elphicke won her seat with 56.9% of the vote after deciding to stand in Dover following her now ex-husband, Charlie Elphicke, being suspended from the Conservative Party and not standing for re-election when he was charged with three counts of sexual assault against two women.

He was found guilty of all counts and sentenced to two years in prison.

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