The Rise and Fall of FTX: How a Crypto Giant Crashed
- Thomas Habith
- Feb 19
- 4 min read
FTX was once considered one of the most promising cryptocurrency exchanges in the world, backed by high-profile investors and celebrity endorsements. Founded by Sam Bankman-Fried (SBF), the company grew rapidly and became a dominant force in the crypto space. However, in November 2022, FTX collapsed spectacularly, exposing massive fraud, financial mismanagement, and a tangled web of deceit. The downfall of FTX sent shockwaves through the crypto industry, leading to billions in losses, regulatory crackdowns, and a loss of trust in digital asset exchanges.
The Meteoric Rise of FTX
FTX was founded in 2019 by Sam Bankman-Fried, a former Wall Street quant trader, and Gary Wang, a former Google engineer. The exchange differentiated itself by offering innovative financial products, including derivatives, futures, and leveraged tokens, attracting both retail and institutional investors. Bankman-Fried, often seen wearing casual attire and promoting an altruistic philosophy known as "effective altruism," quickly became a billionaire and a respected figure in the crypto industry.
Key factors that fueled FTX’s rapid growth included:
Aggressive Marketing and Sponsorships – FTX spent millions on high-profile sponsorships, including deals with Major League Baseball (MLB), the Miami Heat’s arena naming rights, and partnerships with celebrities like Tom Brady and Steph Curry.
Acquisitions and Expansion – FTX acquired Blockfolio, a popular crypto portfolio tracking app, and made investments in various blockchain projects, positioning itself as a leader in the industry.
Close Ties with Regulators – Bankman-Fried actively lobbied for crypto regulations and was perceived as a trusted figure in Washington, D.C.
The FTX Token (FTT) – FTX issued its own exchange token, FTT, which played a crucial role in its operations and later became central to its downfall.
The Beginning of the End
Despite its rapid success, cracks in FTX’s foundation began to appear in late 2022. The downfall of FTX was largely triggered by a leaked balance sheet from Alameda Research, a crypto trading firm founded by Bankman-Fried. The report revealed that a significant portion of Alameda’s assets consisted of FTT tokens issued by FTX itself. This raised concerns about the company’s solvency and sparked panic among investors.
Key events leading to FTX’s collapse:
Balance Sheet Exposure – In early November 2022, a report revealed that Alameda Research had massive holdings of FTT, leading to speculation that FTX and Alameda were deeply intertwined in an unsustainable manner.
Binance’s Role – Binance CEO Changpeng Zhao (CZ) announced that Binance would liquidate its FTT holdings, intensifying fears and triggering a bank run on FTX.
Liquidity Crisis – As customers rushed to withdraw funds, FTX was unable to process withdrawals due to a lack of liquid assets. Within days, FTX was insolvent.
Failed Bailout Attempt – Binance initially announced a plan to acquire FTX but backed out after conducting due diligence, citing severe financial issues.
Bankruptcy Filing – On November 11, 2022, FTX, Alameda Research, and over 130 affiliated companies filed for bankruptcy, marking one of the largest corporate collapses in financial history.
Fraud, Mismanagement, and Criminal Charges
Following the bankruptcy filing, investigations revealed that FTX had engaged in fraudulent activities, including:
Customer Fund Misuse – Billions of dollars in customer funds were secretly transferred to Alameda Research and used for risky trading, venture investments, and personal expenses.
Lack of Internal Controls – FTX operated without proper financial oversight, with billions in missing funds and no structured accounting system.
Lavish Spending – Bankman-Fried and top executives lived extravagantly, purchasing luxury real estate in the Bahamas and making substantial political donations.
In December 2022, U.S. authorities arrested Bankman-Fried in the Bahamas and charged him with fraud, money laundering, and conspiracy. Several key FTX executives, including Caroline Ellison (CEO of Alameda Research) and Gary Wang, pleaded guilty and cooperated with prosecutors.
The Aftermath and Lessons Learned
The FTX collapse had a ripple effect across the cryptocurrency industry, leading to:
Massive Investor Losses – Thousands of customers lost access to their funds, with total estimated losses exceeding $8 billion.
Regulatory Crackdowns – Governments worldwide intensified scrutiny on crypto exchanges, emphasizing the need for better transparency and consumer protections.
Loss of Trust in Crypto Platforms – Confidence in centralized exchanges plummeted, driving interest toward decentralized finance (DeFi) alternatives.
Conclusion: A Cautionary Tale for Crypto
FTX’s dramatic rise and fall serve as a stark reminder of the risks associated with unregulated financial markets. The collapse exposed the dangers of poor risk management, excessive leverage, and a lack of transparency. For the crypto industry to move forward, investors and regulators must demand greater accountability, stronger financial oversight, and responsible leadership.
As legal battles continue and affected customers hope for some financial recovery, the FTX saga remains one of the most significant cautionary tales in financial history, proving that even the most promising companies can crumble under the weight of deception and mismanagement.
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