It took less than a week for FTX to go from the third-largest cryptocurrency exchange in the world to bankruptcy court.
The embattled cryptocurrency exchange, short billions of dollars, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, the hedge fund Alameda Research, and dozens of other affiliated companies filed a bankruptcy petition in Delaware on Friday morning.The embattled cryptocurrency exchange, short billions of dollars, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run.
FTX’s failure goes beyond finance. The company had major sports sponsorships as well, including Formula One racing and a sponsorship deal with Major League Baseball. The investigation is centered on the possibility that FTX may have used customers’ deposits to fund bets at Alameda Research. In traditional markets, brokers are expected to separate client funds from other company assets. Violations can be punished by regulators.Financial company MF Global effectively failed for a similar practice roughly a decade ago when it intermingled client assets with its own bets.
Cryptocurrencies have no protections under law, and politicians on both sides of the aisle issued statements opposing any Lehman Brothers-like bailout for crypto investors. The crypto world had hoped that Binance, the world’s largest crypto exchange, might be able to rescue FTX and its depositors. However, after Binance took a look at FTX’s books, it concluded that the smaller exchange’s problems were too big to solve and backed out of the deal.
On Thursday, the venture capital fund Sequoia Capital said Thursday it is writing down its total investment of nearly $215 million in FTX.The cryptocurrency lender BlockFi announced on Twitter late Thursday that it is “not able to do business as usual” and pausing client withdrawals as a result of FTX’s implosion.
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