After the failure of cryptocurrency exchange FTX and hedge fund Alameda Research, the troubled cryptocurrency sector and its rich pioneers face a day of reckoning.
Sam Bankman-Fried was on a roll in January 2022. His Bahamas-based FTX had recently received $400 million at a $32 billion value from eminent venture capitalists. SBF, as he is known, was the second-richest individual in cryptocurrency, with a net worth of $24 billion, a few weeks after Forbes released its annual list of the world's billionaires.
Bankman-Fried is currently in custody and presumably bankrupt. SBF informed many media outlets before he was detained in the Bahamas that his bank account was down to $100,000 and that he was "not sure" how he would pay his attorneys. Gary Wang, the other co-founder of FTX and the former chief technology officer of the business, lost his wealth, which had been pegged at $5.9 billion.
A year of wealth devastation in the cryptocurrency and blockchain industries was appropriately capped off with FTX's implosion. The inflation and rising interest rates brought on by the post-pandemic economic shock drained money from the speculative crypto sector.
A number of well-known companies collapsed, including the $40 billion algorithmic stablecoin TerraUSD in May, the crypto hedge fund Three Arrows (which filed for bankruptcy in July), and the interest-bearing lending companies Voyager Digital, Celsius, and BlockFi. The main cryptocurrency and leading indicator of the market, Bitcoin, has decreased by 65% from its top of $69,000 in November 2021. A total of $2 trillion in market value has meanwhile left digital assets for greener digital pastures.
Because of this, 17 of the richest investors and creators in the cryptocurrency industry have collectively lost an estimated $116 billion in personal fortune since March, according to estimates from Forbes. Over the previous nine months, fifteen of them have lost more than half of their wealth. Ten have completely lost their billionaire title.
The person most at risk is Changpeng Zhao, the CEO of Binance, the biggest cryptocurrency exchange with a vast worldwide network of mysterious affiliates. The company, known as Binance, is valued by Forbes at $4.5 billion, down from $65 billion in March, and CZ is said to possess almost 70% of it.
On November 6, CZ stated that Binance will sell the last of its FTT, FTX's native cryptocurrency, which helped launch the downfall of the exchange. Customers rushed to withdraw their money, only to find that it had already been taken, causing a run on FTX's cash reserves. A few days later, FTX announced its bankruptcy. Zhao defeated his competitor, but now he must deal with the repercussions.
Additionally, CZ must deal with growing suspicion of centralised exchanges, notably Binance, as well as continuing investigations against him and his business by European and American authorities over claims that they helped facilitate money laundering and other financial crimes. (Binance refuted any misconduct.) CZ has recently tried to convince Binance users that their cryptocurrency deposits are properly supported by hiring the accounting firm Mazars to create "proof of reserves" reports. These accounts, which exclude liabilities, have drawn heavy criticism for being inadequate in that they only give a partial picture of a company's financial situation. Since then, Mazars has stopped working with cryptocurrency firms, which has increased the uncertainty surrounding Binance's finances and the exchange's survival.
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