What Happened to FTX & Sam Bankman-Fried?

The former CEO of FTX has officially stepped down following a crypto-crisis that sent his net worth plunging, from $16B to $0. The ex-billionaire is now being grilled by Congress over his involvement in the crypto-conundrum.

Justin Nugent

This article was last updated on 11/11/2022.

sam bankman-fried, bankman-fried, ftx, binance, ftx, cryptocurrency, crypto exchange, bankrupt

FTX was founded in May 2019 by cryptocurrency entrepreneur Sam Bankman-Fried. A cryptocurrency pioneer, Fried was a true billionaire, with a total net worth of nearly $16 billion dollars — which he used to build his crypto exchange into a titan of industry. By June of 2021, FTX had raised $1 billion dollars with backing from major hedge fund players like Softbank and Sequoia Capital. At it’s height, FTX racked up a sky-high valuation of $32 billion dollars (more than double the present-day market cap of Coinbase). However, in November of 2022, it all came crashing down — impacting everyone from fellow crypto exchanges to the Canadian Teacher’s Union.

What is a crypto exchange? 

A crypto exchange is simply a marketplace where buyers and sellers can trade digital currencies like Bitcoin, Ethereum, Dogecoin, and more. FTX was also associated with Bitcoin and Ethereum options — allowing traders to make leveraged bets for and against the crypto currencies.

According to CoinMarketCap, in October, two cryptocurrency exchanges were responsible for the majority of all crypto trading in the world: FTX and Binance. Binance’ CEO Changpeng Zhao was an early investor in FTX, however Bankman-Fried later bought his stake in FTX back from Zhao — mostly in FTT tokens.

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What happened to FTX? 

On November 2nd, an article from CoinDesk kicked off a firestorm controversy for Sam Bankman-Fried, FTX, and Sam Bankman-Fried’s hedge fund, Alameda Research. The article opened:

The problem: FTX and Alameda were supposed to be two separate companies. However, Alameda was holding a massive stake in FTT, which is the “house” token of FTX. Weary of the recent Luna/Terra meltdown, this revelation rocked the crypto world, sparking some of FTX’s largest investors to jump ship. This included the CEO of Binance, Changpeng Zhao, who was now the lucky holder of a large stake of FTT himself after accepting the cryptocurrency as payment for his stake in FTX. And as they say, selling begets selling.

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FTX, Sam Bankman-Fried, and Binance: A Timeline 

Just four days after the November 2nd report from CoinDesk, Binance announced it would be selling its stake in FTT. As a result, over $6B was withdrawn from FTX in just three days. As a result, the token (which FTX held a massive stake in) took a nosedive.

In September of 2021, FTX Token (FTT) set an all-time high of $85.02. Today, FTT is down 96.81%, trading at just $2.69. Source: CoinMarketCap

The crypto contagion spread quickly. Market Rebellion reported on massive withdrawals and even outages from other exchanges, including Coinbase.

The selling pressure across the cryptoverse sent the price of Bitcoin tumbling down to new 52 week lows.

As a result of the crypto chaos, shares of crypto exchange Coinbase plunged — making put buyers very happy. 

Earlier this week, Market Rebellion alerted Rebels to massive institutional put buying in Coinbase, likely having to do with this. Those puts multiplied in value over a short period of time due to the crypto catastrophe that was unfolding. 

While the damage to Coinbase was limited, FTX revealed that it would not be able to recover. For a moment, Binance stepped in and offered to “rescue” Sam Bankman-Fried and FTX, however, after a short period of due diligence, Binance pulled out on the offer, referencing a potential mishandling of funds and ongoing investigations against Bankman-Fried and FTX.

Investors far and wide were hurt by the crypto crash, including the Canadian Teacher’s Union, who invested in FTX and will now have a $95 million dollar hole in their pension. More than just wallets, trust in crypto itself was severely damaged following the recent FTX scandal.

FTX vs Enron: Bankrupt

FTX is now a bankrupt company with a reported value of just $1. However, according to its bankruptcy documents, FTX liabilities range from $10 to $50 billion. Compare that to another famous bankruptcy: Enron. In 2001, Enron shocked the world when it declared bankruptcy, with liabilities of $23 billion. At the time, it was the biggest bankruptcy in world history. 

Though Enron has now been surpassed in size by a few other unlucky corporate giants (Lehman Brothers being the most notable), it stands as a measuring stick for the reverberations caused by a single company going under. 

The bottom line: There is likely more to come. As the situation with FTX continues to unravel, new developments will likely crop up. Crypto exchange FTX has more than 100 active subsidiaries — meaning over 100 businesses at least 50% owned by FTX. That means that some of the aftershocks of this crypto disaster may have yet to be felt.

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