The cryptocurrency market is undergoing a financial crisis that still hasn’t disclosed all of its ‘victims’ or, more significantly, all of its secrets.
Even the Cassandras of the cryptocurrency industry were surprised by the FTX cryptocurrency exchange’s sudden collapse. The company was worth $32 billion in February of this year. As a result of the demise of Luna and UST, or TerraUSD cryptocurrencies, cash-strapped cryptocurrency companies in the summer were saved by FTX.
Analysts have already made analogies to another financial disaster. In honor of the renowned con artist who mastered the Ponzi scheme, Sam Bankman-Fried, founder of FTX, has been called the “Bernie Madoff of crypto.”
When FTX’s function and position are examined, particularly those of its founder and former CEO, it becomes clear that the company is more like Lehman Brothers in the cryptocurrency industry.
Crypto Lehman Brothers?
The whole crypto sector is at risk if Bankman-Fried’s company falls. The bankruptcy of FTX and its fellow companies runs the potential of disrupting the cryptocurrency market, much to how Lehman Brothers’ collapse threatened to bring down the whole global financial system.
Nick Saponaro, CEO of Divi Project said, “FTX is crypto’s Lehman Brothers moment. In fact, it’s worse. In ‘08, investors would have had some protection. FTX’s investors will not; if history taught us anything, they would lose everything. Inevitably, global regulators will see this as their cue to step in and crack down hard on the industry, making it very difficult for DeFi providers to operate without the oversight of a third party. The polar opposite of why crypto was created.”
Decentralized finance, or DeFi, attempts to upend the conventional financial services industry.
The Bankman-Fried company resembles an octopus with tentacles that reach into every sphere of business. It is crucial to remember that the Bankman-Fried business unquestionably targeted both individual and institutional investors.
Four companies make up Bankman-Fried holding’s top tier. The first is FTX, a marketplace for buying and selling cryptocurrencies. This platform is geared toward foreign investors. A platform comparable to FTX for American investors is called FTX US.
Then there is Alameda Research, which manages all the standard hedge fund activities and serves as a platform for institutional investors to trade cryptocurrencies. The last branch is FTX Ventures, Bankman-Fried’s own venture capital company.
These four companies were significantly involved in the cryptocurrency market. They each have investments in over 250 businesses and projects in the industry. They made investments across the board in the cryptocurrency sector, including trading, lending, games, Non-Fungible Tokens (NFTs), and currencies.
They were increasingly active during the financial crisis that many crypto companies had last summer as a result of their exposure to the Luna and UST cryptocurrencies, which crashed on May 9 and destroyed at least $55 billion in value.
Then Alameda, FTX, FTS US, and FTX Ventures came to the rescue, saving several businesses. For instance, on September 8 FTX Ventures purchased 30% of Anthony Scaramucci’s alternative investment firm Skybridge Capital. He was the president Donald Trump’s director of communications.
Alameda held stakes in at least 36 significant cryptocurrency businesses, including decentralized finance (DeFi) projects like Solana, which provides smart contracts.
Bored Apes & Crypto Punks
FTX Ventures is a shareholder in Yuga Labs, the company that created the Bored Apes Yacht Club, which stands for the renowned Bored Apes collection of NFTs. Additionally, the CryptoPunks NFT collection is owned by Yuga Labs. The two most expensive NFT collections in the world are Bored Apes and CryptoPunks.
Following FTX’s failure, Genesis Trading has barred customers from making withdrawals and proving new loans.
Additionally, FTX has famous investors who are suffering major losses. BlackRock, Binance, LightSped Venture Partners, Temasek, Tiger Global, Ribt Capital, Sea Capital, Sequoia Capital, and Ontario Teachers Pension Plan are some of them.
On Nov. 9, Sequoia Capital said that it valued $210 million investment in FTX at $0 and saw it as a complete loss.