What happened to FTX
FTX, the world’s second largest cryptocurrency exchange, is in a crisis and has pitched the digital asset market into another crash.
Here we look at what has happened to FTX, why, and what it means for the wider market.
What is FTX?
Officially headquartered in the Bahamas, FTX is managed from the US, with its biggest offices in Chicago and Miami.
It is a cryptocurrency exchange, helping people buy and sell crypto assets. Cryptocurrencies are all based on the same basic structure as their star asset, bitcoin: a publicly available “blockchain” that records ownership without having any central authority in control. FTX is big and important because, along with its rival, Binance, it processes the majority of cryptocurrency trades around the world.
Both FTX and Binance are “international” exchanges, the cryptocurrency equivalent of an offshore casino. Each also operates an arms-length US-regulated outlet, which closely follows what little regulation there is from the US government, but the bulk of the money that flows through their books is in effect unconstrained by regulatory requirements.
What happened to FTX this week?
On Wednesday last week, an article appeared in CoinDesk, a crypto industry news service, that triggered a crisis. It claimed that the balance sheet of Alameda, a crypto hedge fund owned by FTX’s founder, Sam Bankman-Fried, held billions of dollars worth of FTX’s own cryptocurrency, FTT, and had been using it as collateral in further loans. If this were the case, then a fall in FTT’s value could damage both businesses, given their shared ownership. But FTT itself had no value beyond FTX’s longstanding promise to buy any tokens at $22, prompting fears that the whole institution was a castle built on sand.