Ftx stock market crash: What happened and how to protect yourself as a user?
Just when we thought it was the end of surprises we were witnessing the craziest days in the crypt in years. After the crypto market withstood interest rate hikes, we were all hoping for a rise in the value of cryptocurrencies. The reason for this is that this market somehow always reacts differently from other markets – both to economic and energy crises. However, then all the events in the market, in which we classify the constant Twitter debates between the largest players in the crypto world – resulted in one of the most significant events in the history of cryptocurrencies, and that is the collapse of the FTX exchange due to its decrease in liquidity.
What does a liquidity crisis really mean?
This means that the FTX exchange is no longer able to return the cryptocurrencies that users hold on that exchange because FTX has somehow run out of them. It seems that FTX and Alameda Research traded cryptocurrencies of users deposited on the exchange, and that due to these actions and a number of other financial irregularities – Binance refused the originalintended purchase of FTX. If this is proven correct FTX CEO Sam Bankman Fried will have to be held legally accountable, and there is currently an ongoing investigation into the Bahamas.The FTT token, which FTX has used as collateral in many loans – has seen a drop of over 70% in the last few days. The FTT token was attempted to be defended with $22 support on that token, but given that it was “breached” – it’s doubtful what will happen next, but it’s likely to get to zero. It’s currently worth less than $2.
Here are some of binance’s CEO statements, the “cz_binance” that preceded ftx’s bankruptcy:
CZ has publicly stated that it has been instructed by the mistakes that Binance has so far paid dearly in the case of the CRYPTOCURRENCY LUNA – made the decision to “release” the FTT cryptocurrency that he received as compensation for cooperation with the FTX exchange. As a reason for this move, he stated that he did not want to support those who lobby against others in the crypto industry, alluding to the CLOSE association of the FTX CEO with politicians and regulators in America, which Sam Fried turned against the Binance Exchange.
Information section
FtX exchange is one of Binance’s biggest rivals, and along with Coinbase, is the only one that went side by side with the innovative solutions binance is known for. After tweeting, skeptics, investors and FTX exchange users began withdrawing cryptocurrencies and money, not wanting to give in to risk due to the clash of the two biggest players in the market. This has led to major and visible changes in the FTX stock market:
- FTX stablecoin reserves have fallen to an annual low, i.e. by 91% if we consider the last two weeks;
- The main wallet of the FTX exchange has an extremely low balance – the wallet had about two billion dollars in various tokens at the beginning of the week, of which more than 50% , or $ 1.1 billion was in the FTT token – the source token of the exchange.
- The FTX owner had a clear response to Binance’s initial allegations, and sent a message that users don’t have to worry, and that everything is fine with the FTX exchange. Unfortunately, this message has been withdrawn, and is no longer valid because FTX has just continued to sink deeper.
- Crypto analysts and experts have made an audit of the FTX exchange’s financial data, and have encountered holes as well as insolvent figures. Then there was silence, and FTX stopped withdrawals from their stock exchange. What followed was an unexpected public solicitation of the FTX leader’s help, and from cz itself.
- In response to the call for help – Binance initially expressed his intention to buy the FTX exchange, and Sam publicly thanked. However- again a coup! Binance nevertheless gave up the purchase, which further influenced the negative perception of FTX in public.
The refusal to buy FTX was followed by a statement by cz on Twitter:
There is speculation about how this whole situation was triggered by Binance to “kill” the FTX exchange as its biggest competitor. According to this theory, the retrospective would look like this:
- Binance set off a rumor of FTX;
- Binance became a threat to FTX because they wanted to sell a huge amount of their tokens;
- Binance intended to buy FTX, its main competitor, to save them from decay, but gave up on that intention.
Traders in the crypto market, frightened by such an explosive and unexpected development, are not sure who to trust in these situations, and doubt the liquidity of other exchanges, given that a fall in FTX can trigger a “domino effect”. The biggest losers according to this development are cryptocurrencies that had a close association with FTX and Alameda Research companies, but also the users of the FTX exchange themselves. As the value of FTT tokens has dropped almost to zero, there is no room for optimism for now. If we consider that Binance only after “peeking” deeper into ftx’s business still decided not to buy the stock market, we can conclude that the situation was really bad.
Current status
FTX – one of the world’s largest cryptocurrency exchange platforms, is in major financial turmoil. At its peak , FTX was valued at $32 billion and on 11/11/2022. the company filed a bankruptcy claim, after rival offshore crypto exchange – Binance, withdrew a contract to buy it, and users withdrew the amount of about $6 billion in funds from FTX. Ftx CEO Sam Freidman stepped down as CEO on Friday after seeing his estimated net worth fall by billions almost overnight, as his cryptocurrency exchange platform is on the verge of collapse. Between 8. and Nov. 9 Sam’s net worth fell to $991.5 million, down about 94% from his estimated $15.2 billion before this event.
What can we learn further?
Never, but never “store” your cryptocurrencies in online exchanges, such as FTX and Binance, no matter how big they are. In other words, never “store” your cryptocurrencies in hot wallets, and certainly not on platforms that don’t give you access to private cryptocurrency keys. Hot Wallett or tiga hot wallet refers to a virtual cryptocurrency wallet that is available online, and facilitates mediating cryptocurrency transactions between owners and customers. A collection of private keys stored in a program connected to the Internet is used to store and send various currencies such as Bitcoin. Instead of storing your cryptocurrencies in a hot wallet, transfer them there only for the purpose of trading, and then, after the work is done – return them to your cold wallet or tiga ledger. Cold wallet, on the other hand, needs online connectivity only at the time of sending and receiving cryptocurrency, and for storage – it works completely offline. One of the main risks of stock exchanges and other centralized financial institutions is precisely that the beneficiary’s funds are not in the hands of users. Because of this – in crisis situations when the stock market runs out of liquidity, those who suffer are users.
Let's recap, what happened in the crypto world?
Here’s a quick look at the events that defined the craziest week in cryptocurrency history. Although we have witnessed a multitude of one-time incidents that have turned the market upside down before – such as the hacking of the Mt. Gox Stock Exchange (2014), Tesla’s $1.5 billion bitcoin purchase or Musk pumping Dogecoin with his Tweets – we never had the opportunity to follow the series of events we just saw, and in just a few days. In the coming days there will be a lot of thinking about what led to the madness, but for now – let’s breathe deeply.
Chronological review of recent events that have shaken the crypto world
2.11.2022.
Data on the key balance sheets of FTX’s sister firm Alameda Research, showed large investments in the FTT token. The data was released by Coinbase, and in doing so, rumors of insolvency and shady dealings between Alameda and FTX were launched.
6.11.2022.
Binance CEO Changpeng “CZ” Zhao said Binance will sell its remaining portion of the FTT token. In response to his statement – Caroline Ellis – CEO of Alameda Research, through a Tweet announcement communicates that Alameda will buy out FTT tokens from Binance at a price of $ 22. With this, the FTT token tried to be defended, but still unsuccessfully given that this value of $22 was “breached”.
8.11.2022.
The price of FTT tokens falls below $22, and Binance publishes a non-binding letter of intent to buy FTX, after thoroughly analyzing FTX’s financial books and loans.
9.11.2022.
After one day, Binance withdraws from buying FTX, and officially withdraws from the FTX contract.
10.11.2022.
FTX CEO declares that Alameda Research – a trading company founded by Sam Bankman-Fried is closing down. At the same time, the bankrupt FTX faces a criminal investigation in the Bahamas: Local regulators have frozen the assets of FTX Digital Markets and all parties involved, calling it a “prudent procedure” to “preserve assets and stabilize the company.” The Bahamas Securities commission also suspended ftx registration and appointed a lawyer to temporarily manage assets. According to the commission, it is true that clients’ assets were mishandled and managed, and that the property was transferred to Alameda Research. Any actions of this kind are potentially illegal.
11.11.2022.
FTX is filing for bankruptcy protection in the U.S.
What if ftx bankruptcy is actually a hack?
Although there has been talk of FTX bankruptcy for days, there is a chance that not everything is as it seemed at first. Given that hundreds of millions of dollars were mysteriously withdrawn from the FTX exchange during Friday’s collapse, suspicions arose that it was actually a hacking incident. Specifically, FTX stated on the same day that it was considering a series of “abnormal” asset transactions. Later analysis showed that more than half a billion were potentially stolen.
Events in favor of the “FTX Hack”
- Telegram admin announces that FTX has been hacked, that there is malware in the app, and that official websites are infected with a Trojan;
- Telegram admin announces that it is sending all crypto to cold storage due to bankruptcy, to disable additional losses due to unauthorized transactions;
- Users of platforms FTX.com and FTX.us suddenly report that they do not have funds in their wallet (note, before all this week’s events, FTX.us guaranteed coverage for its American users);
- Analysts analyze that the outflow of ETH tokens, Solana and Binance Chain tokens went towards decentralized exchanges such as 1inch.
According to these events, the hacker managed to steal $477 million out of a total of $650 million moved to chain 11. He currently holds $62 million in total assets. Cryptanalyst ZachXBT, shared on Twitter that the recent movement of funds is just a fake of tokens in the chain. He explains that the standard ERC-20 “transfer and transfer from” functions can be modified to allow any arbitrary address to be the sender of the token, as long as it is specified within the smart contract. the smart contract. This further results in the transfer of tokens from a different address from which the transaction was initiated. These tokens can be sent to any address and then sent from that address (to any other address) without the address owner having any control over those tokens. If you open a transaction and see “transfer from” – a different address will be displayed. Analysts call this phenomenon “on-chain spoofing”.
What if it's about the mutual interest of FTX global and FTX. The U.S.?
Another fact is interesting – and that is that hackers managed to drain funds from FTX global and FTX. The US is almost simultaneously, despite the fact that these two entities were completely independent. This further set off rumors that it was actually about internal interests. Given that there is no evidence so far that the private key has been compromised, it is also reasonable to doubt the theory that someone with access to mutually independent FTX exchanges staged everything and transferred funds.
How did all this affect the value of Bitcoin?
Bitcoin (BTC) fell 22% in a seven-day period to 11/14/2022, and analysts are currently struggling to assess how the digital asset market will behave, and what consequences are “threatening” the blockchain industry hit by the FTX scandal. In the short term, it will be painful for crypto traders who have lost their funds held on the FTX exchange, and in the long run, further price volatility in the crypto ecosystem is expected. FTX’s digital assets are likely to be the hardest hit.
We are sure that more new information will come in regarding FTX, and we will try to accompany them. In order to stay at the source of verified and current information from the crypto world, stay with us, follow our posts on Instagram, and regularly read Kriptomat blog. Verified information is important in order to make the right decisions about investing, but also about “keeping” your cryptocurrencies safe. For all questions, suggestions and comments – contact us and follow us on Instagram.
Until the next blog,
Your Kriptomat.hr Team
