After a week of agony, FTX, one of the largest cryptocurrency companies in the world, filed for bankruptcy.
The digital currency trading platform filed this Friday for Chapter 11 of the United States bankruptcy law in search of judicial protection, while it finds a way to return part of the billions of dollars lost by its clients.
Sam Bankman-Fried, founder and CEO of FTX, apologized for his company’s difficult financial situation and announced his resignation.
The company explained that the purpose of the bankruptcy is “to begin an orderly process to review and monetize assets for the benefit of all interested parties.”
The plummeting of the firm puts an end to the chaos of the last days that anticipated an eventual collapse of the company.
“I am sorry”
Earlier this week, many customers rushed to withdraw their funds as rumors surfaced that FTX and other companies headed by Bankman-Fried were in deep financial trouble.
Bankman-Fried tried to organize a bailout in the hope that Binance, his rival and one of the world’s largest cryptocurrency exchanges, would buy it.
But Binance walked away from the deal, leaving FTX adrift as it tried to raise billions of dollars to prevent its downfall.
The crisis reached such a point that many customers were left without access to their money.
“Sorry,” Bankman-Fried wrote on Twitter Thursday. “I… should have done better.”
The bankruptcy proceeding will involve FTX, as well as Alameda Research, a trading company founded by Bankman-Fried, and approximately 130 affiliates, according to the statement FTX shared on Twitter.
John J Ray III, an attorney who previously worked at a venture capital firm and has bankruptcy experience, was named CEO in place of Bankman-Fried.
“FTX Group has valuable assets that can only be managed effectively in an organized joint process,” Ray said in a statement.
The victims
One of FTX’s clients, Britain’s Thomas Culham, told the BBC that he has been unable to withdraw the US$2,300 he invested.
For him it has been a “big blow” since his funds in FTX were a “decent part” of his investment portfolio.
“They are probably lost,” the 22-year-old said. “Maybe in a few years I can get some kind of compensation – they have assets [and] they should be able to liquidate them.”
Before the crash, Bankman-Fried had been one of the stars of the crypto scene, with a net worth estimated at more than $15 billion just before the nightmare began a week ago.
The entrepreneur frequently spoke on behalf of the industry before regulators and had run an advertising campaign in the United States, recruiting celebrities such as Tom Brady and Gisele Bundchen, to convince the public that cryptocurrencies were a good investment.
The problems in signing him have shaken confidence in the rest of the crypto market, with coins like bitcoin falling 20% this week.
Authorities have long warned of the risks to crypto investors and raised concerns about the threat of broader financial turbulence, as traditional financial firms expand their investments in that market.
However, not everyone shares the fear of massive contagion.
Dan Ives, an analyst at Wedbush Securities, said he thought the fall of FTX would not cause major problems in the industry.
“It’s a black swan event. There’s really no bleeding in the market overall, there’s containment,” he told the BBC.
Although he could lose his money, Culham said that it would not discourage him from investing in more cryptocurrencies in the future.
“I think there are a lot of opportunities,” the young man assured, adding that he was not investing more than he could afford to lose, and that he was not investing in just one type of cryptocurrency either.
Analysis by Joe Tidy, BBC Technology Correspondent
They say that fortunes can be made and lost in “cryptoland” in the blink of an eye. But there hasn’t been a fall like Sam Bankman-Fried.
Just a few months ago, the 30-year-old billionaire was being compared to investment mogul Warren Buffett.
He was dubbed the “King of Cryptocurrencies” and he not only survived the harsh crypto climate of 2022, he thrived.
But in just over a week, his FTX empire has collapsed, plunging the cryptocurrency market into stagnation and punishing the value of virtual currencies.
Bankman-Fried admitted that the crash is his fault, but that will be little consolation to the 1.2 million FTX customers who could potentially lose their crypto savings.
Bankman-Fried admitted that the drop is their responsibility, but that will be little consolation to the 1.2 million FTX customers who could potentially lose their crypto savings.
All eyes will now turn to the other major cryptocurrency markets. With FTX, the second largest going bankrupt, the pressure will be on the remaining companies to prove they have the financial strength to stay afloat.