The cryptocurrency world was shaken to its core in November 2022 when FTX, once a towering giant valued at $32 billion, collapsed into bankruptcy in less than ten days. This event marked one of the most dramatic downfalls in financial history, erasing billions in user funds and triggering a widespread crisis of confidence across the digital asset industry.
This article explores the rapid ascent and sudden collapse of FTX, examining the key events, business strategies, and industry-wide implications of its failure.
The Meteoric Rise of FTX
Founding and Early Days
FTX was founded in May 2019 in Hong Kong by Sam Bankman-Fried (SBF). The name FTX stood for “Futures Exchange,” signaling its initial focus on derivatives trading. SBF, then 27, was a MIT physics graduate who had previously worked at the quantitative trading firm Jane Street. Before FTX, he established Alameda Research, a crypto trading firm, in 2017.
2019: Laying the Groundwork
- July: FTT token launched.
- August: Introduction of leveraged tokens; $8 million seed round raised.
- December: Strategic investment from Binance.
2020: Gaining Momentum
- FTX reached $20 billion in daily trading volume.
- Launched innovative products like U.S. election futures and oil contracts.
- Acquired Blockfolio for $150 million.
- SBF gained attention with a $5.2 million donation to Joe Biden’s presidential campaign.
The Peak: 2021 Expansion
Benefiting from the crypto bull market, FTX grew at an unprecedented pace. Its valuation soared to $32 billion following a $900 million Series B round.
Key 2021 Milestones:
- SBF ranked #2 on Forbes’ Crypto Billionaires list.
- FTX.US saw a 150x increase in trading volume.
- Major acquisitions and expansion into new jurisdictions.
Sports and Celebrity Marketing:
- $135 million naming rights deal with Miami Heat.
- Partnerships with Tom Brady, Gisele Bündchen, Stephen Curry, and Mercedes-AMG F1.
- Sponsorships across esports, baseball, and cricket.
2022: The Unraveling Begins
Despite a strong start—including a Super Bowl ad and a $2 billion venture fund—rising interest rates and market volatility began to strain the entire crypto sector.
The Collapse: A Timeline of Failure
The end came swiftly:
- Nov 2, 2022: CoinDesk revealed Alameda’s balance sheet was heavily dependent on FTT.
- Nov 6: Binance CEO CZ announced plans to liquidate Binance’s FTT holdings.
- Nov 8: FTX halted withdrawals after a $5 billion bank run.
- Nov 11: FTX filed for Chapter 11 bankruptcy.
What Went Wrong?
- Misuse of Funds: Alameda Research had borrowed ~$10 billion from FTX using customer funds.
- Leverage and Liquidity Crisis: FTX’s assets were highly illiquid. When withdrawals surged, it couldn’t meet demands.
- Corporate Governance Failure: Lack of oversight between FTX and Alameda led to catastrophic risk management failures.
Impact on the Crypto Industry
Exchange Sector: Crisis of Confidence
The collapse triggered a massive withdrawal of funds from centralized exchanges (CEXs). Over $8 billion in assets were pulled within a week.
In response, major exchanges like Binance, OKX, and Huobi began publishing Proof of Reserves (PoR) to improve transparency. However, PoR alone couldn’t fully restore trust, as questions over asset quality and verification methods remained.
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Shift to Self-Custody
The mantra “Not your keys, not your coins” gained renewed emphasis. Demand for hardware wallets like Ledger and Trezor surged, and software wallets like MetaMask saw increased adoption.
Many exchanges also launched their own Web3 wallets, offering users a bridge between centralized and decentralized finance.
Lessons and Takeaways
Trust and Verification
The FTX collapse underscored the dangers of over-relying on centralized intermediaries. The episode reinforced the importance of:
- Self-custody solutions.
- Transproof of reserves.
- Regulatory clarity and oversight.
Innovation and Resilience
Despite the fallout, the crypto industry has historically shown resilience. Past crises—Mt. Gox, The DAO hack— led to stronger infrastructure and smarter regulations.
This event may accelerate the adoption of decentralized technologies and better risk management practices.
Frequently Asked Questions
What was FTX?
FTX was a global cryptocurrency derivatives exchange founded by Sam Bankman-Fried. It grew rapidly before collapsing in November 2022.
How did FTX go bankrupt?
FTX used customer funds to cover losses at its sister company, Alameda Research. When customers attempted mass withdrawals, FTX lacked the liquidity to fulfill them.
What is Proof of Reserves?
Proof of Reserves is an auditing method that allows exchanges to prove they hold sufficient assets to cover customer balances. It uses cryptographic techniques like Merkle trees for verification.
Should I keep crypto on an exchange?
It is generally safer to hold large amounts in self-custodied wallets. For active trading, use exchanges with strong security and transparency practices.
What exchanges are considered safe now?
Exchanges that provide real-time Proof of Reserves, use third-party audits, and have a long track record of reliability are generally more trusted.
Will the crypto industry recover?
The industry has survived multiple cycles of boom and bust. While setbacks occur, innovation continues to drive long-term growth and adoption.
The fall of FTX serves as a stark reminder of the risks inherent in rapidly growing and largely unregulated markets. While the short-term impact has been severe, the long-term response—greater transparency, improved security, and more decentralized solutions—may ultimately strengthen the ecosystem.
For those building and investing in crypto, the lessons are clear: prioritize security, verify everything, and remember that not everything that shines is gold.