FTX filed for bankruptcy. The second largest cryptocurrency exchange in the world still looked like a successful company two weeks ago. Now new driver John J. Ray III is calling it the biggest failure he’s ever seen in his career. What happened?
What is happening?
FTX was a crypto platform where a lot of money was traded every day. That cryptocurrency exchange has taken on all kinds of debt along with subsidiary Alameda Research. When those debts could no longer be paid, FTX collapsed.
“Everyone thought it was a thriving business,” says Peter Slagter, a digital currency expert. Now it turns out it’s a big mess. Ray III said in a statement Thursday that confidential data was not being handled properly. The company’s money was also used to buy homes for employees.
How is FTX getting so out of control?
There is much speculation as to how this could have come to this. Much is still unclear. This is now being investigated. “It’s ironic. FTX founder Sam Bankman-Fried was seen as the ideal son-in-law until two weeks ago,” says Slagter.
He often came to Washington, precisely to talk to American politicians about stricter rules for cryptocurrencies. “Now it turns out that he himself is corrupt.” Bankman-Fried is said to have shuffled billions to absorb big losses from FTX and Alameda.
How do you avoid such situations?
From an international perspective, more rules need to be introduced, says Lisa Neves Gonçalves, spokeswoman for payments and cryptocurrencies at De Nederlandsche Bank (DNB). “Innovative sectors are often seen to be ahead of the regulations. With better regulations, consumers know where they are.”
Something needs to be done about it now. Fortunately, before the FTX abuses came to light, laws and regulations were already being worked out. “A new law is coming to Europe,” says the spokesman. The law will come into force in 2024.
What are the consequences of FTX bankruptcy?
To begin with, this situation has consequences for companies. “We can compare it to a big earthquake. During an earthquake, the weakest building falls first. In this case it was FTX, but it doesn’t stop there. The buildings surrounding it, then the companies that have something to do with FTX – they are also affected.”
These are, for example, companies that have invested in FTX. Even companies that have borrowed a lot of money can run into problems. “It is not yet known how many companies there are.”
Bankruptcy also has consequences for FTX clients. “It’s very questionable to them what’s left of the money they’ve invested,” says Slagter. FTX used clients’ money for their own purposes. “That money is probably gone.” What’s left is unlikely to make it to consumers. I’m at the back of the queue of money that needs to be repaid after this bankruptcy. “In short, they probably won’t get their money back.”
What can you do if you have crypto now?
In any case, it is useful for the Dutch to bring cryptocurrencies to the Netherlands. “I’m not saying it can be trusted 100 percent,” says Slagter. “But if something goes wrong, it falls under Dutch law and you can follow all the developments in your own language. That makes all the difference.”
Also, according to Slagter, it’s good to see what can be done to reduce the risks. “For example, you can take a critical look at how you store your cryptocurrency. Do you do it yourself, with a company or do you have it done? In the latter case, you deliver a lot. You have to think carefully about whether you want to take that risk.”
DNB cannot advise on this. But if you want to invest in cryptocurrencies in the future, “only do it with money you can save,” says Neves Gonçalves. Then you will not face any unpleasant surprises.
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