Collapse of FTX Crypto Trading Firm

Why in news?

FTX, the world’s second biggest crypto exchange, went bankrupt, affecting an estimated 10 lakh-plus people who were barred from withdrawing funds.

What is the issue about?

• FTX - FTX is a cryptocurrency exchange that enable customers to trade digital currencies for other digital currencies or traditional money, and vice versa.
• FTX is run by Sam Bankman-Fried and is headquartered in the Bahamas.
• FTX has a native cryptocurrency token called FTT, which traders use for operations like paying transaction fees.
• Reasons for the collapse - Alameda's balance sheet was reported to be heavily stacked with its sister company FTX's native tokens instead of other cryptocurrencies, which led to a panic selling in FTT.
• The fear of insolvency in FTX Group over its financial positions started.
• When Binance,the world’s largest cryptocurrency exchange, started to liquidate their holdings in FTT tokens, and later refused to bail out FTX, the situation worsened.
• FTX has also confirmed that there had been unauthorized access to its accounts.
• FTX filed for bankruptcy along with 130 additional affiliate companies.

What is the impact of FTX bankruptcy on crypto market?

• Uncertainty - The FTX Group’s bankruptcy has sent shockwaves of fear, uncertainty and ambiguity across the crypto market worldwide.
• The issue reminds about the previous case of the Terra tokens collapse that wiped out billions of dollars in wealth.
• Effect on other cryptocurrencies - The collapse cast a shadow over the performance of bigger cryptocurrencies such as Bitcoin and Ethereum.
• Bitcoin, the largest cryptocurrency, is trading at an almost two-year low around 16,600 dollars while Ethereum dropped more than 8%.
• Impact on retail investors - There is a fear that lot of retail investors might go inactive for a while due to the current volatility in the market.
• Impact on institutional investors - The institutional investors might like to capitalize on discounted assets at the moment and hedge their investments.
• Stringent regulations - Structural changes in the crypto ecosystem and much stricter regulations are expected after this episode.
• Positive impact - Other active exchanges could see a flurry of deposits coming in which depends on which exchange is in its best shape at the moment.

References

1. The Indian Express│ What’s happened to crypto exchange FTX?
2. Forbes│ FTX Falls: What It Means For Indian Crypto Investors
3. Livemint│ How will FTX bankruptcy impact crypto markets?