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 of billions of dollars, is seeking bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, hedge fund Alameda Research and dozens of other affiliated companies filed for bankruptcy in Delaware on Friday morning.
CEO and founder Sam Bankman-Fried has resigned, the company says. Bankman-Fried was recently estimated to be worth $23 billion and has been a prominent political donor to Democrats. His net worth has all but disappeared, according to Forbes and Bloomberg, which closely track the net worth of the world’s richest people.
“I was shocked to see things play out the way they did earlier this week,” Bankman-Fried wrote in a series of posts on Twitter.
FTX’s unraveling causes ripple effects. Already companies that supported FTX are writing down their investments. Politicians and regulators are increasing calls for stricter oversight of the crypto industry. And this latest crisis has put pressure on the prices of bitcoin and other digital currencies. The total market capitalization of all digital currencies fell by about $150 billion in the last week, according to CoinMarketCap.com.
FILE – In this photo illustration, the logo of FTX, a cryptocurrency exchange, is shown on a smartphone screen. (Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
Bankman-Fried has other problems as well. On Thursday, a person with knowledge of the matter said that the Justice Department and The Securities and Exchange Commission investigated FTX to determine whether criminal activity or securities crimes have been committed. The person could not discuss details of the investigations publicly and spoke to The Associated Press on condition of anonymity.
The investigation centers on the possibility that FTX may have used customer deposits to fund bets at Alameda Research. In traditional markets, brokers are expected to segregate client funds from other corporate assets. Violations may be punished by supervisory authorities.
In its bankruptcy filing, FTX listed more than 130 affiliated companies that circled around the world. The company valued its assets between $10 billion to $50 billion, with a similar estimate for its liabilities. The company named as its new CEO John Ray III, a longtime bankruptcy litigator best known for cleaning up the mess made after Enron’s collapse.
FTX had earlier this week agreed to sell itself to larger rival Binance after experiencing the cryptocurrency equivalent of a bank run. Customers fled the exchange after becoming concerned about whether FTX had sufficient capital.
The crypto world had hoped that Binance, the world’s largest crypto exchange, might be able to save FTX and its depositors. But after Binance looked at FTX’s books, it concluded that the smaller exchange’s problems were too big to solve and pulled out of the deal.
FTX is the latest in a series of cascading disasters that have rocked the crypto sector, now under intense pressure from collapsing prices and circling financial regulators. Its failure is already being felt throughout the crypto universe.
On Thursday, venture capital fund Sequoia Capital said Thursday it is writing down its total investment of nearly $215 million in FTX.
Cryptocurrency lender BlockFi announced on Twitter late Thursday that it is “unable to do business as usual” and is halting client withdrawals as a result of FTX’s implosion.
In a letter posted to its Twitter profile late Thursday, BlockFi — which was bailed out by Bankman-Fried’s FTX early last summer — said it was “shocked and dismayed by the news of FTX and Alameda.”
The company concluded by saying that any future communications about its status “will be less frequent than what our customers and other stakeholders are accustomed to.”
Bitcoin tumbled immediately after the letter was sent and is trading below $17,000. The original cryptocurrency, bitcoin, had been hovering around $20,000 for months before FTX’s problems became public this week, sending it briefly down to around $15,500.
Washington reporters Matt Ott and Michael Balsamo contributed.