Coinspeaker
Crypto Exchange FTX Won’t Reopen despite Repayment Goal
FTX, once one of the most popular cryptocurrency exchanges, experienced a significant downfall in November two years ago. Founded by Sam Bankman-Fried in 2019, the company reached a valuation of $32 billion in 2022. However, questionable practices and potential fraud have led to its rapid decline.
Concerns arose in November 2022 regarding FTX’s relationship with a related trading firm called Alameda Research. There were suspicions that the former exchange had used customer funds to support Alameda during a liquidity crisis. These allegations caused customers to withdraw $6 billion from the exchange within a short period of time.
FTX was unable to fulfill the withdrawal requests, leading them to file for bankruptcy on November 11, 2022. Following this, Bankman-Fried was arrested by US authorities and charged with defrauding investors and misusing customer deposits. He has pleaded not guilty and is awaiting sentencing.
Potential Buyers Refuse to Take on FTX Restart Challenge
Initially, FTX engaged in discussions with potential buyers and investors to revive the exchange. However, these parties discovered significant issues during their due diligence, causing them to back out of the deals. A lawyer involved in the case explained that Bankman-Fried failed to establish the necessary technology and management for running a complex global exchange.
Unable to find a way to restart its operations, FTX decided to liquidate its remaining assets. The goal was to repay customers and creditors to the best of their ability. So far, the company has recovered over $7 billion in cryptocurrency assets, which it believes may eventually allow full repayment to customers. The company has also reached agreements with governments to hold off on their combined $9 billion in claims until customers are repaid.
Repayment Process Still Not Straightforward.
FTX has also announced that the repayment would be based on the value of the cryptos when the crash occured. However, some customers have raised objections to the plan since there has been a big difference in the prices of cryptos from then until now.
November 2022, when the exchange crashed, was the peak of the crypto winter, and the prices of all currencies were depressed. At that time, Bitcoin was trading at around $17,000, and the price has now increased to more than $42,000, representing a 150% difference since then. However, a judge has supported FTX’s approach, as it aligns with US bankruptcy law.
The process of fully reimbursing FTX customers poses various challenges. Verifying the claims of millions of customers will require time and resources. Bankman-Fried’s sentencing and potential appeals further complicate the situation. Additionally, liquidating numerous global corporate entities is a complex task.
Although the road ahead appears difficult for FTX customers seeking reimbursement, the exchange assures them that asset liquidation will eventually make them whole. However, rebuilding trust with devastated investors after losing billions of dollars in client funds will be a difficult task. Also, the collapse of the once major exchange serves as a reminder of the uncertainties within the largely unregulated cryptocurrency sector.
