Don’t be Fooled…Here’s The Real Reason Why FTX Failed (& What Can We Learn From It)
Yes, the blockchain is here to stay, and if you’re questioning the validity of cryptocurrency then you’re missing the point entirely — here’s why.
What is FTX?
- FTX is a digital currency exchange, a platform where people can buy and sell digital assets like bitcoin (BTC), dogecoin (DOGE), and ether (ETH).
- It rose in popularity in recent years as more people looked to invest in cryptocurrencies without the hassle of setting up a crypto wallet.
- TL;DR: The outcome of the project ended in disaster after the team lost $50,000,000 USD with 90% of their investors losing money. Yes — you read that right — even with the benefit of hindsight — it was still a total failure!
How did it become so big?
- The company quickly rose to international prominence through a series of high-profile acquisitions, aggressive marketing strategies and low trading fees.
- Even those unfamiliar with the technology were lured to FTX with promises that they could park their money in accounts and earn much higher yields than at traditional banks.
A virtual bank run
- After Alameda’s balance sheet was leaked, Changpeng Zhao, CEO of the crypto platform Binance, announced on Nov. 6 that his company would sell off all its FTT tokens
- The price of FTT dropped sharply
- As the price dropped, many FTX customers moved to withdraw their assets from the platform
An unbalanced balance sheet
- Media organizations have reported that FTX needed to raise $8 billion to cover the gap between what it owed and what it could pay out
- Normally, a business produces balance sheets several times a year that provide reliable information on the company’s assets and liabilities
- But the balance sheets of Bankman-Fried’s firms were never audited, meaning there is no reliable account or paper trail of what money the company had and where it went
Oops and Pursuits
- Before the full extent of the crisis became public, and desperate to keep his companies afloat, Bankman-Fried grasped for a lifeline as signs of a broader crypto crash loomed.
- On Nov. 8, he announced that Binance would purchase FTX for an undisclosed amount in what would essentially constitute a bailout for the beleaguered firm.
- But Binance quickly backed out, with Zhao citing reports that FTX had mismanaged user funds and information gleaned during the standard due diligence process.
New Tech, Same Wall Street Story
- In what we refer to in Silicon Valley as a “post-mortem Root Cause Analysis”…the blame is not on the technology, nor is the topic of the validity of cryptocurrency even relevant here
- The real culprit lies in the unspoken rules of the imaginary game of Wall Street and its gambling addicted players who have made a “career” of making money out of thin air, empty promises, fanatical speculation, syndicated racketeering, and unchecked market manipulation
- If you believe otherwise then you don’t understand the technology…which is so not your fault and very much OK — we can blame that on the aloof community of NorCal devs who were mistakenly trusted with product decisions…I’ve been an avid developer and enthusiast since 2009 and find myself unsure of new innovations and terminology daily
I don’t even have any crypto, why should I even care about this?
- Cryptocurrency and mainstream blockchain adoption is the future — not exactly in the way you might but you should follow me on TikTok for authentic explanations of what this all means for regular people…without the mansplaining, gatekeeping, and mystifying of it all
- Commercial banks collected $12.4 billion dollars in overdraft fees in 2020. That means banks took over $12 billion dollars from people with no money during a global pandemic. DeFi is how we reclaim (y)our birthright to prosperity.
Ok fine, so what now?
- If you’re in the U.S., create a free cashapp account and activate your virtual debit card. Enable bitcoin round-ups and make any purchase with your free debit card the cents up to the nearest dollar will automatically make you an owner of Bitcoin.
2. As we learned from the case study above, never keep your crypto in an exchange (!) so create your own personal wallet, I prefer the Spot Wallet mobile app for its simplicity and user-friendly design, it also comes with a Chrome extension. Use my referral code for $5 for each of us! ENQVL6
3. Send that free Bitcoin from CashApp to your Spot wallet, swap for new coins. Welcome to Web3 you trailblazer, you! 🎉
