Posted on: Wednesday, November 23, 2022 – 7:55 PM | Last update: Wednesday, November 23, 2022 – 7:55 PM
A cryptocurrency trading company called “FTX-FTX Platform” filed for bankruptcy on November 11, and it is the second largest cryptocurrency exchange in the world. Within 3 days, fortunes estimated at 32 billion dollars evaporated, and the wealth of the company’s president, Sam Bankman Fried, collapsed from regarding 16 billion dollars to less than a billion dollars. However, some press reports indicate transfers of a total of $ 10 billion from the funds of the platform’s customers to another commercial company owned by Fried called Alameda Research – Alameda Research. Then Fried submitted his resignation from the FTX presidency, which indicated the possibility of near-fraud behind the collapse of the platform. Fried revealed that the liquidity crisis is what led to the collapse of the company. Despite the availability of liquidity at a value of $900 million, which is net of liabilities of $13.86 billion and assets of $14.6 billion, this liquidity is not sufficient to cover the daily trading activity, which led to a crisis that ended with the company’s bankruptcy.
But how does a company collapse in 3 days when it has 5 million users and has traded more than $700 billion in cryptocurrencies in 2021? Here is the answer. On November 9, the Binance platform applied to its owner, Chang Bang Zhao, which is the largest cryptocurrency trading platform in the world, to purchase the FTX platform, in order to help the latter overcome its crisis. Dealers in the cryptocurrency market interacted positively with the news, and hopes that the crisis would be overcome and a major shift in the world of cryptocurrencies revived. But Chang’s position declined, following 24 hours, and his company announced the sale of all its holdings of the FTT currency – $ 580 million – owned by the FTX platform, which led to an immediate collapse in the price of the FTT currency from $ 22 to only two dollars. Then fortunes were told, hopes were lost, and the FTX platform went bankrupt. This was reflected in the cryptocurrency market in general, as the most famous of them, Bitcoin, lost regarding 20% within three days, and its price fell to $16,500, which was trading at the beginning of the year at $46,000! Other currencies such as Ethereum decreased by 22.7% to record $1266, BNB by 16% to record 281.4, and Dogecoin by 29.4% to record $0.09.
These hot billions that evaporate are not made in decades or long years, but the 29-year-old Fried created the FTX platform in 2019. He is the son of two professors at Stanford University Law School, and a graduate of the Massachusetts Institute of Technology. At the beginning of his life, he worked as a broker on Wall Street, before turning to digital currencies in 2017. His wealth exceeded $ 25 billion before the platform was declared bankrupt, as he was one of the 70 richest people in the world, according to Forbes classification. He is one of the largest donors to the Democratic Party and President Joe Biden’s election campaign in 2020. Many observers fear that the bubble that burst with his company’s bankruptcy is similar to the fraud case led by Bernie Madoff, the former non-executive chairman of the Nasdaq Stock Exchange, who carried out the largest fraud in the history of the New York Stock Exchange. He was exposed due to the 2008 global financial crisis, and he was sentenced to life imprisonment following the evaporation of fortunes estimated at $64 billion.
While Madoff was linked to the money of the European and American elites, and his fraud led to the suicide of many financial intermediaries with network relations in the European and American elites, and ended up in prison, Fried is linked to cryptocurrencies that trade in a different range, where financial transactions are active. It is not transparent and it is not known precisely who is behind it. Hence, Fried does not direct legal consequences for the bankruptcy of his company only, but the coming days may appear from the bosses of organized crime pursuing him in retaliation for the loss of their money! Unlike Madoff, who had no media appearances before his arrest, Fried used Hollywood celebrities to promote his platform through paid advertisements. Which affects the status of these stars. CNN presented a report on November 15 regarding the platform’s bankruptcy, and the role of some Hollywood stars in promoting it, which amounted to misleading the public.
But what is the reason behind the decline in the value of cryptocurrencies since the beginning of this year, which pushed their general downward trend! For the answer, the subject must be approached from at least two levels. the first; The crisis of the war in Ukraine, and the resulting severe volatility in the global stock exchanges, increased the severity of the risks that originally characterized them, and with fewer investment alternatives in these risks that are exacerbated in the cryptocurrency market, due to the absence of any supervisory authorities or disciplined regulations, It is represented in the bonds, whose yields increased. A wave of reluctance by investors from cryptocurrencies began, and the demand for them decreased.
The second level is the traditional currencies, the most important of which is the dollar. Raising its interest rate over and over once more led investors holding dollars all over the world to rush to US banks to obtain a safe investment and a good return with less risk. In other words, why would an investor risk resorting to a high-risk market like cryptocurrency, if the traditional currency market has very good gains and low risk! The recovery of the dollar’s strength led to a decline in global gold prices. Bearing in mind that the rise in the price of gold in Egypt is linked to the decline in the price of the pound! But once inflation stabilizes in the United States and the successive rises in interest rates stop, it is likely that the dollar exchange rate will decline and the value of gold will rise. Either way, the cryptocurrency market will continue to suffer, but it will not end.
Despite the criminalization of dealing in cryptocurrencies inside Egypt, the matter may be related to other indirect Egyptian interests! Here is an example to illustrate. The Russian Central Bank has opposed the use of cryptocurrencies for any internal or external payments, but since last September it has agreed to recognize cryptocurrency payments, saying that it is inevitable in the current geopolitical conditions. How will this affect the exchange between the two countries? In conclusion, some think that the collapse of a platform the size of FTX and the decline in Bitcoin prices are indications of the demise of cryptocurrencies, while in reality all of these are a series of experiments that develop work in cryptocurrencies. And by resorting to a country the size of Russia to use these currencies, its survival is certain and its size will increase.