FTX, once the fourth largest crypto exchange, filed for Chapter 11 bankruptcy on November 11th. This decision is one of the biggest setbacks for the young crypto industry.
Chapter 11 bankruptcy allows FTX to restructure itself without pressure from its customers and creditors. This court proceeding is not new to the crypto space as so many insolvent crypto exchanges have filed in similarity.
"In order to begin an orderly process to review and monetize assets for the benefit of all global stakeholders, John J. Ray III has been appointed CEO of the FTX Group." "Sam Bankman-Fried has resigned his role as CEO and will remain to assist in an orderly transition."
The announcement caused a plunge in crypto assets. Investors are expecting a cascade of losses as many crypto firms have exposure to FTX. SBF rescued and bailed out a lot of crypto businesses during the crypto winter. FTX clients and investors are not certain to get their money back. There will be a real legal challenge in the coming months with the central point of whether cryptocurrencies are legal.
The FTX debacle impacts sectors other than the crypto industry. The firm had extended its ties beyond the crypto planet. It was a sponsor of several major sporting events. Its two main ambassadors are NFL star Tom Brady and NBA star Steph Curry. The two stars are also shareholders of FTX.
FTX's bankruptcy filing had been expected for a few days. Things came to a head on November 9 when rival Binance announced it was abandoning a deal to acquire FTX after discovering that the group's problems were bigger than expected.
On November 6, Binance sold FTT, the crypto issued by FTX, for $500 million. In doing so they triggered a panic. Many customers then rushed to FTX to request their cryptocurrencies. That day $5 billion were withdrawn from the platform, a record. FTX needed an injection of $8 billion to meet its obligations.