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FTX, Crypto Coin, what has happened in the past few weeks, and what could happen in the future?

By Guardian Nigeria
23 November 2022   |   3:58 am
The past few weeks have been filled with devastating news about the crypto industry due to shocking revelations behind the scenes of FTX. The series of events unleashed another ounce of volatility concerning the already highly speculative digital asset market, casting doubts and speculations on industry leaders. At the center of it all, is FTX’s…

The past few weeks have been filled with devastating news about the crypto industry due to shocking revelations behind the scenes of FTX. The series of events unleashed another ounce of volatility concerning the already highly speculative digital asset market, casting doubts and speculations on industry leaders.

At the center of it all, is FTX’s founder, Sam Bankman-Fried, popularly known as SBF, who currently has a net worth of nearly zero, crashing within days from being initially worth close to $16 billion. His crypto company, FTX, which had a strong claim for the best crypto exchange in the US, also filed for bankruptcy protection in the US on the 11th of November 2022.

One thing is certain – these past few weeks have been a black one for the digital asset industry at large. Although that’s something we can all agree on, the random news breaks and the lack of a centralized source means that most individuals have still not gotten a vivid understanding of the causes, impacts, and future implications of the FTX collapse.

How safe is the crypto market? Can I still save in crypto? Can I reliably pay bills with crypto, let alone depend on crypto cards which are funded by accounts held by crypto companies?

These are some of the questions bugging crypto enthusiasts.

To answer them, we summarized FTX’s collapse from start to finish, discussing the major current and future implications.

The Origin – Why did FTX Collapse?

The short answer to this question is – due to a token called FTT.

FTT was by design, a share in FTX that the company issued itself and had promised to buy back using a portion of its profit at a later time.

Unfortunately, the meltdown was set in motion when documents leaked to the crypto news site, CoinDesk, which suggested that Alameda, FTX group’s hedge fund, was leveraging FTT to make risky loans. This is more or less trading using the company scrip.

This revelation prompted another major player in the crypto market and a revival crypto exchange platform, Binance, to declare intentions to sell its FTT holdings. Until then, Binance had been one of the major holders of FTT and provided alternatives to FTX services like virtual dollar cards and other virtual cards aside from crypto trading.

Binance declaring its intention prompted an exchange rush as other FTT holders scrambled to sell off and withdraw their funds. The scrambling revealed deeper issues regarding the link between FTX and Alameda. It turned out that the crypto exchange company lacked the ability to accept wire transfers, therefore, customers had to send their funds to Alameda, after which FTX proceeded to credit the customer’s accounts. However, the actual money was never passed on to FTX and remained with Alameda.

This system operated for three years, during which Alameda had held on to, traded with, and largely lost $8bn of FTX customer funds. When withdrawal demands for those funds were placed by customers during the rush, FTX could not meet up as it had never collected the money from Alameda in the first place.

In the words of John Ray III, an American bankruptcy specialist:

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here”.

This is the major event that sent FTX crashing down.

How does this impact the crypto market?

There have been several follow-up investigations and revelations since this shocking event. Several companies have been affected after investing in FTT and have not been able to get their money back. Conclusions have been drawn with many arguing – this is a success for decentralized finance or DeFi, which leverages computer code to build financial services that don’t rely on a central party.

There are also questions about the idea of cryptocurrencies being the champion of the notion – “a world where the government has no direct power over money will be a better one”.

Crypto big players are starting to entertain the fact that government regulations over financial institutions and crypto may be a better option.

Trust issues are starting to develop around crypto trading in the African markets. Knowing how to buy bitcoin in Ghana, for example, was common knowledge but due to present circumstances, traders are less willing to take risks with smaller platforms.

This is not a “lack of infrastructure” problem as there are still several trading platforms offering such opportunities, instead, the concerns on trading activities like how to buy Ethereum in Ghana or how to buy USDT in Ghana revolves around the safety of the trading platform itself.

Will customers get their money back?

Some customers will get their money back and some may not. However, the only guarantee here is that no one is going to get everything back.

According to SBF, it will take an $8bn capital injection to fully refund customers, however, Ray believes otherwise. According to him, there is no single document detailing all of FTX depositors, and the balance sheet suggests a mixture of assets and liabilities.

“I do not have confidence in it and the information therein may not be correct as of the date stated,” he said.

Things are still unfolding by the day, revealing the domino impact of FTX’s collapse on the global crypto market, especially in Africa. However, crypto traders may yet have some respite in other platforms that can cool their nerves regarding how to buy Ethereum in Kenya or how to buy USDT in Kenya and other African countries.

On the bright side, there is yet little hope for FTX customers in the US judging from a statement by Robert Frenchman, a partner at the New York law firm Mukasey Frenchman.

He made it clear that FTX customers in the US with money trapped in failed businesses will have to join the creditor waiting list. This is because there are no special protections by law for customers of unregistered crypto firms like FTX.

“There is no backstop here for customers in the US, unlike for bank or brokerage account holders. The customers will have to fight it out with everyone else because they have no special protections. They go into this process as individual creditors, or as a group of creditors if they band together, who must battle it out with legions of other creditors, large and small,” he said.

What does this mean for the African crypto market?

At the moment, it does not look like FTX customers outside the US will get their money back. This has caused stir in the African crypto market, causing customers to ask crypto trading questions like how to buy bitcoin in Nigeria with the already existing CBN policies.

Discussions around the surest way on how to buy USDT in Nigeria are also up for discussion due to frail trusts – if FTX can crash, is Binance next? Or perhaps an African crypto giant?

For sure, there are platforms whose existence answers certain enthusiast questions like how to buy Ethereum in Nigeria and due to the global nature of the crypto market too, they also answer similar questions like how to buy bitcoin in Kenya through their services.

Bitmama remains one of the reliable crypto exchange platforms for traders to trade in confidence. From virtual cards to secure P2P marketplace options, Bitmama is one of the African startups trusted by customers to provide crypto trading services for enthusiasts.

At the moment, we wait to watch the extent of the impact of FTX and its associated companies unfold.

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