Alameda Research became insolvent and was bailed out by FTX
November is, without a doubt, the market’s most challenging month for cryptocurrencies. Shortly after Binance’s CEO declared that the exchange would eliminate the FTX token, drama broke out between Bitcoin (BTC) and the altcoins. The main issue with this narrative is Sam Bankman-(SBF) Fried’s trading firm, Alameda Research. This is due to a complaint that Alameda was having insolvency issues that surfaced in early November.
According to a report by Coindesk and cited by Binance, Alameda could not have enough money to pay its debts as they become due. The majority of the assets held by SBF’s trading company were FTT, with a sizeable percentage of its cash invested in illiquid tokens based on the Solana blockchain.
The company would have joined Terraform Labs, Celsius Network, and Three Arrows Capital on the bankruptcy list (3AC). Since FTX would have been affected by this issue, Binance, a large cryptocurrency exchange, was contacted. According to CZ, CEO of Binance, Binance, the latter exchange would be acquired. Binance decided not to buy FTX soon after conducting its due diligence on the cryptocurrency trading platform. However, FTX has been embroiled in other scandals as well.
SBF needed to borrow $1 billion from Wall Street and Silicon Valley millionaires to raise new funds despite his desire to pass security and declare that everything was in order. The fact that SBF took this move a short time before FTX reported its distress to Binance is an intriguing aspect of this scenario.
Furthermore, $1 billion is insufficient to address the exchange’s issues. It requires at least $8 billion to remain afloat, after all. So it’s incorrect to think that FTX didn’t have a liquidity issue. Alameda Research is also not as trustworthy as it promises to be. A bankruptcy petition would have been made long before everything fell apart.
Idolized by the cryptocurrency market, SBF gained popularity by achieving a net worth of over $16 billion. His previous company, FTX, had been dominating the cryptocurrency market. SBF was further proud to claim that despite having fewer clients and being a relative novice to the business, he was nevertheless able to outperform Coinbase in terms of turnover.
“Our numbers are outstanding. We transact six times as much as Coinbase. Twenty times fewer people use us. There is a lot of potentials when you look at these stats. Despite being implicated, SBF managed to get attention in numerous project launch-related scandals; the most recent one included the APT token.
Of course, we cannot forget that immediately after the Terra ecosystem collapsed, FTX made a million-dollar rescue of BlockFi, and SBF held a significant bid for the assets of Voyager Capital (LUNA). This action undoubtedly improved FTX’s reputation as a financially stable business. There was a reasonable explanation for this. In a dispute over the assets of Voyager, FTX prevailed over Binance.
There was something off at Alameda Research. As an illustration, Sam Trabucco decided to leave his position as platform CEO at the end of August. Some areas of the market stopped paying attention to the decision because it seemed arbitrary at the time. A major red flag was then raised when Brett Harrison, the former president of FTX, decided it was time to step down. After all, why would two outstanding leaders leave successful businesses? That made more sense than it already did. Following these exits, FTX came under SEC scrutiny.
FTX and SBF are the subjects of an inquiry by the Texas Securities Regulator. Accounts that FTX offered that gave investors money in exchange for depositing their cryptocurrencies with the company were under investigation, as Texas State Securities Board executive director Joe Rotunda stated in October.
The bankruptcy of Alameda Research
Even though all of these facts already pointed out a problem, Alameda’s actual bankruptcy would have undoubtedly occurred earlier. The trading business declared bankruptcy in the second quarter of 2022, according to a tweet sent by CoinMetrics’ Head of R&D, Lucas Nuzzi. According to Nuzzi, Alameda only managed to survive because FTX allegedly promised them money. The deception ended 40 days ago, according to the Coinmetrics researcher, when 173 million FTT, with a market value of $4 billion, unexpectedly became active on-chain.
If Alameda had passed away in May, the FTT ICO contract would have been carried out, leading to a significant sale for all tokens bought in September. Knowing that it is clear that FTX was devoted to saving Alameda when it claimed it was assisting Voyager Digital.
FTX may bring more negative impacts on cryptocurrencies
The Big Money settlement between Binance and the FTX significantly impacted Bitcoin and the altcoins. Macroeconomic pressures had already made things difficult, but the tumultuous situation among the biggest cryptocurrency trading organizations worsened matters. FUD has gotten worse among FTX investors, who are increasingly worried about their investment amounts. On the other hand, venture capitalists worry that their investments may be completely lost. BlockFi, a lender funded by FTX, also declared it would stop allowing customer withdrawals.
On December 10, Genesis Block, a company impacted by the FTX scandal, would stop trading and shut down its website. However, this does not imply that these initiatives are the only ones impacted by the demise of the once-dominant market players. One alternative coin that demonstrates this is Solana. Nov. 8, 2022, will unquestionably be remembered as the craziest day in the history of the crypto market.
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