Binance is the largest and most renowned cryptocurrency trading platform. FTX is also a cryptocurrency trading platform, and it is also one of the top 3 largest platforms: they include Binance, Coinbase, and FTX. Therefore, the bankruptcy of FTX is driving the cryptocurrency investors into panic because this was the first case where a trading platform went bankrupt and announced that they cannot pay back people’s investments. This made the reliability of other platforms to drop as well, causing drops in major cryptocurrency: Bitcoin.
Then why did one of the largest trading platforms go bankrupt suddenly?
There are two major reasons that made harmony and created a critical damage to FTX. Firstly, it is their unique style of investing in various risky assets. First, FTX created the FTT cryptocurrency and used it to gather money. The CEO of FTX, Sam Bankman-Fried, had founded Alameda Research which invested on FTT to make it rocket high. However, when money was gathered through FTT, he once again invested them on another risky asset which became the firewood. The ignition was made by Binance in
November 7. Zhao Changpeng, the CEO of Binance, left a tweet that Binance will liquidate all of their remnants of FTT from their exit last year in July.
This made the investors confused, and some sold all of their cryptocurrency that was deposited in FTX. The next day, the 8th, Binance announced that they signed the letter of intent to take over FTX which finalized the investors to liquidate their remnants. However, a huge change occurred the next day: Binance withdrew this announcement.
Since FTX lacked the currency to pay back, they filed for bankruptcy.
This is a big problem for cryptocurrency investors since it showed one disadvantage of cryptocurrency. Now people should pay attention to how other platforms reinforce their reliability.