The downfall of FTX, once one of the biggest cryptocurrency exchanges in the world, shocked the entire financial and tech industries. At its peak, FTX was valued at $32 billion, and its founder, Sam Bankman-Fried (SBF), was seen as a genius in the crypto space. But within a matter of days in November 2022, everything crumbled billions of dollars vanished, customers lost their money, and SBF was arrested for fraud.
So, what exactly happened? Let’s break it down in simple terms.
➥ FTX: From Billion-Dollar Success to Bankruptcy
FTX was founded in 2019 and quickly became a top crypto exchange where people could trade digital currencies like Bitcoin and Ethereum. It was known for offering complex financial products and was heavily promoted by celebrities, athletes, and politicians. SBF became a billionaire in his late 20s, and FTX secured major sponsorships, including naming rights for the Miami Heat's NBA arena.
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But beneath the surface, FTX had serious problems, most linked to another company, Alameda Research, which SBF also owned.
➥ The Key Reasons Behind the FTX Collapse
➲ FTX Misused Customer Funds
FTX wasn’t just a crypto exchange it was closely tied to Alameda Research, a trading firm run by SBF. Behind the scenes, FTX was secretly transferring customer deposits to Alameda, which then used that money for risky investments, loans, and high-stakes trading. Essentially, the money people thought was safely stored in their FTX accounts was being gambled away without their knowledge.
➲ The Leaked Balance Sheet
In early November 2022, a report exposed that most of Alameda’s assets were held in FTX’s own cryptocurrency token, FTT. This raised major concerns because it meant that if the FTT token lost value, Alameda could collapse, and FTX would be dragged down with it.
➲ The Binance Effect & Panic Selling
When the news broke, Binance CEO Changpeng “CZ” Zhao (one of FTX’s biggest competitors) announced that he was selling off $500 million worth of FTT tokens. This created panic in the market. People started selling off their FTT holdings, causing the token's price to crash.
➲ FTX’s Liquidity Crisis
As more customers rushed to withdraw their money from FTX, the exchange couldn’t pay them back. The company had been secretly using customer funds to cover its debts, and when withdrawals surged, FTX simply didn’t have enough real cash to fulfill the requests.
➲ Bankruptcy & The End of FTX
On November 11, 2022, FTX filed for Chapter 11 bankruptcy, marking one of the biggest financial collapses in modern history. SBF resigned as CEO, and investigators uncovered $8–10 billion in missing customer funds.
➥ The Legal Fallout: SBF’s Arrest & Conviction
Sam Bankman-Fried was arrested in December 2022 in the Bahamas, where FTX was headquartered. He was later extradited to the U.S. and faced charges of fraud, conspiracy, and money laundering.
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In 2023, he was found guilty of orchestrating one of the largest financial frauds in history. He now faces decades in prison for misusing customer money, lying to investors, and running what many consider to be a crypto Ponzi scheme.
➥ How the FTX Collapse Affected the Crypto Industry
The fall of FTX didn’t just affect its customers it sent shockwaves through the entire cryptocurrency market.
Loss of Trust in Crypto Exchanges – Investors realized that even large crypto platforms could be mismanaged and fraudulent.
Increased Government Regulations – Governments worldwide introduced stricter rules to prevent similar collapses in the future.
Crypto Market Crash – Bitcoin, Ethereum, and other major cryptocurrencies dropped in value as investors pulled out of risky investments.
➥ In short
FTX’s downfall is a lesson in financial mismanagement, greed, and lack of transparency. Sam Bankman-Fried was once seen as a crypto genius, but behind the scenes, he was running a company built on dishonesty and reckless decision-making.
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The FTX story reminds us that just because a company is big and successful doesn’t mean it’s safe especially in the world of cryptocurrency.
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