Business and political circles were shocked by the sudden failure of FTX, one of the biggest cryptocurrency exchanges in the world.
The size of the shock is indicative of the crucial role that FTX and its founder, Sam Bankman-Fried, have played in establishing the emerging sector that seeks to shake up traditional financial services.
The sudden collapse of a firm with a founder regarded as one of the richest men in the world, valued at $32 billion in February, put pressure on the whole cryptocurrency industry.
Investors appear to have lost faith and are now suspicious of every cryptocurrency company. They ponder whether they can believe the accounts provided to them and the claims made by executives of the cryptocurrency industry.
If you perform a background check on someone like Sam [Bankman-Fried], you will not discover anything; he was immaculate, if you will, previous to this occurrence, Anthony Scaramucci, founder of alternative investment firm SkyBridge Capital, said.
Bankman-Fried, who was still the platform’s CEO the day before it filed for bankruptcy, declared his empire to be “fine” on that day.
However, he requested assistance from his competitor Changpeng Zhao 24 hours later. Zhao reversed his decision to acquire FTX a day later, claiming that after his teams began due diligence, the situation was even worse than he had anticipated.
Retail Investors Concerned
They had lied. FTX was dishonest. He believes Sam lied to his staff, users, shareholders, regulators all over the world, and all users, Zhao stated this on November 14 at a Twitter event. So, sure, he should bear the most of the blame.
When customers tried to withdraw money from the platform a few days ago, there was insufficient liquidity, which resulted to FTX’s collapse. On November 11, the business submitted a Chapter 11 bankruptcy filing. According to Reuters, which cited two insiders who “had top FTX roles until this week,” the liquidity issue appeared to have been caused by its founder allegedly transferring $10 billion of customer funds from FTX to his bitcoin trading site Alameda Research.
One of FTX’s major competitors, Crypto.com, has recently been the center of attention. The platform, which purchased the naming rights for the Staples Center, home of the Los Angeles Lakers, a famed NBA franchise, is surrounded by doubts and inquiries.
Customers raced to withdraw their cryptocurrencies and money over the weekend out of fear that Crypto.com would turn out to be the next FTX.
A crypto investor wrote on social networking site Reddit, he was my worried since the beginning because of the CEO, but if they make it through this, he will keep using their service for sure.
Retail investors’ posts on social media were inundated with anxiety.
Troubling Past
In the previous seven days, Cronos (CRO), the cryptocurrency released by Crypto.com, has decreased by 33%. Since its all-time high on November 24, 2021, there has been a 93% overall drop. The most popular digital currency, bitcoin (BTC), has dropped 76% of its value since its peak in November 2021, while the cryptocurrency market as a whole has lost more than $2 trillion over the past year.
According to Matt David, a representative for Crypto.com, during the weekend there was a spike in all transactions, but the platform has stabilized. Although there had been some odd withdrawals, he recognized that things are again back to normal.
However, the controversial past of CEO and co-founder Kris Marszalek is currently the focus of attention. According to the sources, it appears that before co-founding Crypto.com, he managed an Australian business that abruptly shut down, infuriating clients and partners who complained they had been scammed.
The company in question, Ensogo, functioned somewhat like Groupon in that it provided online coupons. But Ensogo abruptly shut down in June 2016, roughly at the same time as Marszalek left and joined crypto.com. The platform’s shutdown had not been announced to sellers or buyers.
The Board of Ensogo Limited (E88) wishes to advise that Kris Marszalek has accepted his resignation, effective June 20, 2016, the company said in a statement on June 21, 2016. Mr. Marszalek, who co-founded E88, has served as the organization’s CEO since August 2014. The Board has not yet made public the choice of a new CEO.
Ensogo requested that the firm be delisted from the stock market the following day. They were also informed that the site would be shut down for financial reasons.
According to the company’s regulatory filing, “E88 no longer intends to provide financial support to any of its subsidiaries that operate the Company’s marketplace and flash sales businesses. The voluntary suspension is requested because the withdrawal of financial support is likely to result in the shutting down of those subsidiaries (which may include a form of voluntary administration for those subsidiaries).”
Some vendors reportedly informed authorities they had been cheated, according to the report, who reported that buyers and sellers on Ensogo’s platform were taken by surprise by the closure and were left with losses.
Marszalek had co-founded the business, but according to Matt David, a spokesman for Crypto.com, he no longer exercised authority. The representative informed that he was not a part of the board that decided to close the platform.
In 2010, Kris founded Beecrazy. He turned it into a successful online store. The company was purchased by iBuy Group, which is owned by Malaysia’s Catcha Group, as part of a rollup and initial public offering (IPO) in December 2013 “David clarified.
Kris was requested by Catcha Group in 2014 to oversee the turnaround of iBuy Group. The rolled-up businesses adopted the moniker Ensogo. Against Kris’s desires and recommendations, the Catcha-controlled board opted to shut down Ensogo in the middle of 2016,” David stated.
Kris did not sit on the board of directors and owned a small percentage of the company at the time, he continued. As a result of the suggested closure, he resigned. One of the reasons Kris disagreed with the choice was the outrage the shutdown caused among consumers and customers. Under Kris’ direction, there was never a finding of misconduct.
There is no back door
As a cryptocurrency exchange, FTX fulfilled orders for their clients, accepting cash and purchasing cryptocurrencies on their behalf. FTX served as a custodian, holding the crypto currency of its clients.
Crypto.com serves the same purpose.
FTX then leveraged its clients’ crypto assets to produce cash through borrowing or market making via its sister company’s Alameda Research trading arm. In the summer of 2022, the funds borrowed by FTX were utilized to bail out other crypto institutions.
FTT, the cryptocurrency FTX was issuing, was being used as collateral on the company’s balance sheet at the same time. This exposure was quite enormous because of the concentration risk and the volatility of FTT.
David said, they don’t use their customers’ crypto. They can’t transmit money to unauthorized accounts or arbitrary addresses using their system, He continued by saying that they “back consumers 1:1,” which means they have not taken out loans against their clients’ assets.
The spokesman further asserted that Crypto.com does not have a back door that would permit its management to change the books secretly from investors and auditors.
David declared, they don’t have a back door.
According to Reuters, FTX’s financial statements revealed a “back door” in the books that was made with “bespoke software.” According to reports, Bankman-Fried might use it to change the company’s financial records without setting off any alarms.
Bankman-Fried, however, refuted the notion of a “back door.”
A balance sheet audit will be released by Crypto “within 30 days.”
Private investors own the Singapore-based business. Thus, it is not required to divulge his financial details.
Marszalek is a Hong Kong resident.
