FTX, one of the world’s largest cryptocurrency exchanges, filed for Chapter 11 bankruptcy on Friday. It took less than a week for the company and its once-popular CEO to financially collapse.
AILSA CHANG, HOST:
It is a breathtaking collapse. Today, one of the largest cryptocurrency trading platforms filed for bankruptcy. It’s called FTX, a company that earlier this year paid for ads like this one that aired during the Super Bowl. It shows a crypto booster trying to convince a skeptical Larry David.
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UNIDENTIFIED ACTOR: (As character) Like I said, it’s FTX. It is a safe and easy way to get into crypto.
LARRY DAVID: I don’t think so. And I’m never wrong about that stuff – ever.
CHANG: What was supposed to be a funny joke then seems pretty prescient today. NPR’s David Gura now joins us with more. Hey, David.
DAVID GURA, BYLINE: Hi, Ailsa.
CHANG: Alright. So what exactly happened with FTX today?
GURA: Well, on Friday, before the markets opened, FTX announced on Twitter that it had filed for bankruptcy. And the numbers in this case are staggering. First of all, it’s not just FTX. This is FTX plus over 130 affiliates. And we learned that their combined liabilities are between $10 billion and $50 billion.
CHANG: Oh, my God.
GURA: That’s what they owe their creditors.
GURA: And there are over 100,000, a group that includes individual investors. Importantly, the company also announced its founder, Sam Bankman-Fried, who is barely 30 years old, by the way – Bankman-Fried is no longer the CEO of FTX. It has a new boss, John Ray, someone with a lot of experience cleaning up big messes like this, Ailsa. He was brought in after the collapse of Enron.
CHANG: Wow. Enron’s cleanup guy is now taking over.
GURA: Yeah. This implosion was very rapid. I will explain to you what happened here.
GURA: One of the rivals of Sam Bankman-Fried, the head of another crypto exchange called Binance, has raised questions about FTX’s finances. It was a few days ago. He announced his intention to withdraw many assets from FTX. This scared FTX customers so much that the company faced a liquidity crunch and froze withdrawals. And that’s where things took a really dramatic turn. The head of Binance – again, Sam Bankman-Fried’s rival – offers FTX a life raft, says he will buy the company and then, hours later, backs out of the deal. And at that time, Ailsa, the writing was really on the wall.
Chang: Yeah. Can you tell us more about Sam Bankman-Fried? It was the 30-something who was at the center of it all.
GURA: Yeah. Besides being very young, he was, until very recently, a multi-billionaire, known for almost always wearing shorts, t-shirts and running shoes. The New York Times called him neatly disheveled but also a crypto emperor. Here he is at a conference retracing how he got into this business.
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SAM BANKMAN-FRIED: It felt like, oh, wow, maybe there are actually some really good trades to be had here. And I jumped in, and I think it was – I spent, like, a year trading before I could really tell you what Bitcoin was.
GURA: It’s faded, but it didn’t take long for him to become a celebrity – first within crypto, then beyond crypto, playing with Tom Brady, signing sponsorship agreements. Miami’s NBA arena is named after FTX. Bankman-Fried recently shared the stage with former President Clinton and former President-Prime Minister Tony Blair, and he was one of the biggest donors to Democratic candidates.
CHANG: Wow, what a fall. Well, where does all of this ultimately leave investors in FTX and its clients?
GURA: Yeah. No one is feeling very optimistic, and it’s not going to resolve quickly. This week we’ve seen at least one major venture capital firm, which has invested over $100 million in this venture, throw in the towel. Sequoia has reduced its investment to zero, which means the company considers it worthless. But it wasn’t just venture capital backing FTX. A pension plan for teachers in Canada has invested US$95 million. And there are a lot of retail investors, a lot of people who have deposits with FTX who don’t know what will happen to those assets. Lee Reiners is the head of the Duke Financial Economics Center.
LEE REINERS: The problem with Crypto is that there is no lender of last resort to step in and provide emergency liquidity to support the system, is there? The Federal Reserve is not just going to step in here.
GURA: There is no safety net. And, Ailsa, on top of that, the US FTX platform says it might stop trading in a few days.
CHANG: So, David, what do you think this collapse means for, say, the wider crypto universe?
GURA: Yeah. Crypto was out of shape before this happened. Bitcoin is down about 75% from a year ago when it hit an all-time high. We have been in this crypto winter, as investors call it, an extended downturn. And that makes matters worse. Right now, there is a sense of desperation in the crypto world and a sense that this meltdown may finally cause Washington to step in. Much has been said about the need for regulation and what it might look like. It could open the door to that, Ailsa. We know that key committees, including the Senate Banking Committee, are watching this closely, as is the White House.
CHANG: This is David Gura from NPR. Thank you very much David.
GORA: Thank you.
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