One of the largest cryptocurrency exchanges in the world, FTX, filed for Chapter 11 bankruptcy protection Friday.
The news marks a stunning fall from grace for FTX, one of the leading exchanges in the nascent cryptocurrency market valued at its peak around $32 billion.
Rumors beginning earlier this week cast doubt over the financial strength of FTX’s cash reserves. On Monday, FTX’s CEO and founder Sam Bankman-Fried sought to reassure customers that all was well in a now-deleted tweet.
“FTX is fine. Assets are fine,” Bankman-Fried wrote at the time.
That, in retrospect, appears to have been an unsuccessful last-ditch effort by the telegenic wunderkind to shore up confidence in his failing crypto exchange.
The whirlwind week began when Changpeng Zhao, founder of a rival crypto firm, Binance, publicly shared his concerns on Twitter that FTX had liquidity issues. This prompted a bank run on FTX with a rash of withdrawals triggering a massive credit crunch.
Unable of meet the capital demand, FTX turned to Binance, the largest cryptocurrency exchange in the world, for dire financial support. However, despite initially agreeing to buy FTX and solve the crisis, Binance backed out of the deal following further due diligence into the company’s financial records.
This sent FTX into a tailspin from which it could not recover, culminating in the company filing for Chapter 11 protection Friday.
The precipitousness of FTX’s demise has shocked the crypto world. Barely 30 years old, Bankman-Fried had an estimated net worth of nearly $25 billion and had become one of the leading proselytizers of crypto, embracing greater regulation and transparency.
“Here we are, with one of the richest people in the world [Sam Bankman-Fried], his net worth dropping to zero, his business dropping to zero. . . . The velocity of this failure is just unbelievable,” Harvard bankruptcy professor Jared Ellias told the New York Times.
It has been a rough year for cryptocurrencies. This spring, the market shed over $2 trillion as market instability wreaked havoc on investors. However, FTX weathered the storm and was seen by many as a bastion of stability under good leadership.
The ripples of FTX’s collapse are now being felt across the wider cryptocurrency market. Bitcoin, the most established cryptocurrency, has shed over 20 percent of its value this week alone.
People familiar with FTX told the New York Times that the exchange may have as much as $8 billion in outstanding debt to cover.
Bankman-Fried has stepped down as CEO of FTX.