FTX capped a rough week for crypto by filing for Chapter 11 bankruptcy in a United States court. Sam Bankman-Fried also stepped down as FTX’s CEO.
The public drama this week started when Binance CEO Changpeng Zhao announced that it was going to dump its FTT holdings. FTT is FTX’s native token and could be used to unlock discounts on FTX trading fees. FTT predictably cratered and is currently trading at $2.71.
Perhaps Changpeng Zhao knew something that FTX was trying to hide from the public. FTX had been on a tear just months ago. It acquired BlockFi and LedgerX. It also bought the naming rights for the Miami Heat’s basketball stadium and forged a deal with Major League Baseball (MLB) to put its logo on MLB umpires’ uniforms. In September, Sam Bankman-Fried boasted about having $1 billion for acquisitions and bailouts.
Sam Bankman-Fried donated a lot of money to political campaigns and Political Action Committees (PACs) during the recent midterm election season in the United States. However, it never really reached the levels he promised. He is also unlikely to donate the $1 billion he promised to influence the 2024 presidential election.
He had also promoted the “effective altruism” movement, which focuses on doing the most practical good for society.
Then it started falling apart. Changpeng Zhao’s announcement forced Sam Bankman-Fried into damage control mode. Bankman-Fried offered to buy as many FTT tokens as Binance was selling for $22 apiece, something that Zhao spurned. Then he tried to sell FTX to Binance, which fell through when Zhao didn’t like the condition of FTX’s finances. An effective bank run on FTX did not help matters. Soon, Sam Bankman-Fried’s estimated fortune of $15.2 billion plummeted to less than $1 billion.
Alameda Research couldn’t have come out unscathed. It had billions of dollars’ worth of FTT tokens and “FTT collateral” on its books out of total assets of $14.6 billion before FTT collapsed. It also had $8 billion in liabilities. Sam Bankman-Fried did confirm that Alameda Research would start moving away from trading digital assets and certainly would not trade on FTX anymore.
Sam Bankman-Fried tried negotiating with other businesses and big names in the digital asset industry for a total of $9.6 billion in bailouts for FTX. TRON’s Justin Sun showed interest but cited the need to do his due diligence — likely using the same reasoning that Changpeng Zhao used when he went from signing a letter of intent to acquire FTX to backing away from it.
Meanwhile, Tether personnel indicated that they had no more money to give to Sam Bankman-Fried’s former empire despite previously sending $36.7 billion in USDT to Alameda Research for unknown reasons. More than $30 billion of that USDT had been relayed to FTX.
Sam Bankman-Fried could not negotiate a big enough bailout to save FTX from bankruptcy. He did apologize for the meltdown on Twitter. However, an apology is unlikely to placate cranky traders who probably lost a lot of money, especially if they had bags of FTT or had funds on FTX.
FTX filed for Chapter 11 bankruptcy, which means it could reorganize, restructure its debt, and then stand a chance of coming back, even if in a smaller and more humble form. In its current condition, it is unlikely to be “bailing out” or acquiring other crypto businesses with terms that are favorable to Sam Bankman-Fried anytime soon.