Growing Pains: The Price of Progress
In the past couple of months, the crypto space has been rocked by numerous developments, from the collapse of Terra coin to the closure of Three Arrows Capital, a cryptocurrency hedge fund, and Celsius, and Voyager, two prominent crypto trading and lending firms in July. But none is much bigger and more impactful than the shocking and still unfolding FTX debacle. Being one of the major trading exchanges in the crypto industry, this has sent waves over the past few days. We break down the timeline, what went wrong and what lies ahead.
What Happened?
On November 2, Coindesk, a news site specializing in bitcoin and cryptocurrency, released an exclusive article that revealed how heavily invested Alameda Research trading firm is in the FTX exchange's FTT token. For context, both FTX and Alameda Research are owned by Sam Bankman-Fried. Coindesk, citing a private document, showed how closely tied the two companies are. Its publication raised questions about both companies' survival if the FTT token suffers a significant drop in value.
November 6. Changpeng "CZ" Zhao, CEO of Binance, the biggest crypto exchange in the world, and FTX's rival, announced that Binance would sell their remaining FTT tokens. They previously held a significant stake in FTT. This move depleted the value of FTT, causing a massive pullout from FTX customers.
Two days after Binance sold its FTT holdings, the token's value has sharply fallen. CZ tweeted that his company has sent a non-binding letter of intent to buy the troubled exchange. This development somehow eased the industry panic.
However, just a day after announcing his intent to buy out FTX, CZ walked away from the deal after reviewing FTX's books. His company cited reports of "mishandled customer funds and alleged U.S. agency investigations" that prompted them not to pursue the potential acquisition.
November 10 saw Bankman-Fried announcing that Alameda Research is winding down its operations.
With Binance dropping its intent to buy out FTX, Bankman-Fried was left with no choice but to resign as the company's CEO and file for voluntary Chapter 11 bankruptcy proceedings on November 11.
December 12 Bankman-Fried was taken into custody by authorities in the Bahamas regarding the FTX collapse.
What went wrong?
The simplest explanation we could manage is FTX, as a crypto exchange firm, lets its customers buy and sell cryptocurrencies. Think stock exchange but for crypto. They also hold customer deposits. Alameda Research, on the other hand, is an investment fund that trades cryptocurrencies, acting like a hedge fund but for crypto. As mentioned at the top of the article, both companies are owned by Sam Bankman-Fried. The two businesses were touted as separate businesses. However, when Alameda Research needed funds, FTX, unknown to its investors, employees, and auditors, lent billions of customer deposits to Alameda, according to a report by Wall Street Journal. In an investor's meeting, SFB mentioned that the investment fund owed FTX about $10 billion. This action caused a liquidity crisis for FTX, eventually resulting in its downfall.
How will it affect the industry?
FTX's collapse undoubtedly will significantly affect the crypto and NFT space in the coming months. There is no going around it. As more details emerge, we can see that the damage won't stop at FTX. The fallout is felt across the industry, with Bitcoin and Ethereum values hitting a slump. As we continue to monitor the situation, it is clear that there will be a lot of challenges for the crypto industry in the future. SBF, for many, was the poster child for cryptocurrency reliability. But with the collapse of FTX, trust in the technology eroded, and it has spooked many investors. For now, the "crypto winter" is projected to be a bit longer. The current situation will also prompt regulators to step in to avoid the same thing from happening again.
What Lies Ahead
With all of this in our perspective, is it the end? Will it be all gloom and doom the rest of the way?
Not at all. In fact, analysts are looking at the big picture. The industry has survived crashes in the past. Though this one will undoubtedly have a more significant, longer-lasting impact, they still have a positive outlook on the industry's future.
As emerging technology, cryptocurrency and blockchain are still developing. With this comes growing pains. As painful and scary as the current situation is, there is still a silver lining once interest in the technology stabilizes. In the process, purging the industry of bad players and unscrupulous figures is a necessary step toward gaining back trust in the technology. The previous months also saw a lot of risky activity being flushed out of the system, eventually leading to a better industry.
Even Elon Musk, CEO of Tesla and Twitter, still maintains a positive outlook on cryptocurrency. In a series of replies, he mentioned in his tweets cryptocurrencies he believes have a future despite the recent fall of FTX.
Furthermore, the recent debacle highlights the strength of Decentralized Finance, which is one of the tenets of blockchain technology that powers cryptocurrencies. It also pushed existing exchanges to be more transparent to their investors. This move was spearheaded by Binance CEO CZ when his company publicly announced its wallet addresses and on-chain activity, which they posted on their website and Twitter account. This move is a step toward improving trust, transparency, and accountability for the technology and system. Other exchanges are following Binance's lead by committing to use the same proof-of-reserve system.
Lastly, we at Artyst Space put utmost importance on our customer's and partners' trust. We strive for transparency in our transactions and fully comply with existing laws and regulations. We firmly believe that collecting NFTs need not be complicated; thus, we present a simple, straightforward, highly reliable space. Where collectors need not worry about unnecessary schemes that might jeopardize your collection. As we weather these trying times, we will continue to be your trusted partner. We would be glad to hear from you! Talk to us on our social media accounts or through our discord channels.