Investors Panic, Rush For Withdrawals

One of the world’s biggest cryptocurrency exchanges, FTX, has filed for bankruptcy protection in the US amid warnings the embattled industry faces a 2008-style crisis.

FTX’s founder, Sam Bankman-Fried, also resigned as chief executive after a precipitous fall from grace that began last week with reports about the financial structure of his crypto empire.

In a statement, FTX said a range of related businesses including its US-based exchange and Alameda Research, a trading firm also owned by Bankman-Fried, had filed for chapter 11 proceedings in the US state of Delaware “in order to begin an orderly process to review and monetise assets for the benefit of all global stakeholders”.

CNBC reported that the bankruptcy filing showed FTX has more than 100,000 creditors, assets in the range of $10bn to $50bn as well as liabilities of between $10bn and $50bn. The volume of trades at FTX so far this year was $627bn, according to the crypto website CoinGecko, placing it in the top five exchanges with industry leader Binance on $4.9tn.

The FTX statement added that Bankman-Fried, 30, had resigned as chief executive, and would be replaced by John J Ray III, an American lawyer who previously rose to prominence when he was appointed in 2004 to oversee the liquidation of Enron, the Texas energy company that collapsed in 2001 after massive financial fraud was exposed.

“I’m piecing together all of the details, but I was shocked to see things unravel the way they did earlier this week,” Bankman-Fried tweeted on Friday. “I will, soon, write up a more complete post on the play by play, but I want to make sure that I get it right when I do.”

As of Friday morning, Bloomberg terminals were reporting Bankman-Fried’s wealth as down “100%” from $16.2bn earlier this year, with his current net worth estimated at $3.

There were also signs on Friday of knock-on effects from FTX’s struggles. BlockFi, a crypto lender, said it was pausing customer withdrawals. FTX had bailed out BlockFi in June with a $250m loan, a week after having loaned almost $500m to the struggling crypto broker Voyager Digital. BlockFi said it was “not able to operate business as usual” given the situation.

Bitcoin, the cornerstone crypto asset, fell by up to 7% to $16,361 on the bankruptcy news, close to Thursday’s two-year low. The crypto market reached a peak of $3tn last year but is now trading at about $850bn.

On Friday, Changpeng Zhao, the founder of FTX’s rival Binance, warned the crypto market faced a 2008-style crisis with more failures to come. Speaking before FTX filed for chapter 11 protection, he told a conference in Indonesia that the global financial crisis was “probably an accurate analogy” to this week’s events, the Financial Times reported.