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Less than 24 hours after claiming that FTX was illiquid but not insolvent, CEO Sam Bankman-Fried resigned from his position and FTX has filed for Chapter 11 bankruptcy.
Announcing the news via a press release posted to its official Twitter account, FTX Group said it has filed for bankruptcy in the state of Delaware on behalf of 130 of its affiliated companies.
This means that both FTX.com and Alameda Research, Bankman-Fried’s crypto trading firm, will have their assets reviewed and monetised “for the benefit of global stakeholders”.
Even FTX US, which was spared the ongoing withdrawal freeze due to clear separation of funds, will undergo bankruptcy proceedings.
The only FTX-affiliated companies that will not file for bankruptcy are FTX Digital Markets, FTX Australia, FTX Express Pay and LegderX, a crypto derivatives exchange and clearing house.
John J. Ray will take over as FTX CEO, but Bankman-Fried will remain on hand to assist in an “orderly transition”, according to the company statement.
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” said Ray.
“The FTX Group has valuable assets that can only be effectively administered in an organized, joint process.
“Stakeholders should understand that events have been fast-moving and the new team is engaged only recently.”
What a difference a day makes
Both the news of the resignation and FTX’s bankruptcy filing will come as a shock to those who have followed Bankman-Fried’s public statements over the last few days.
Throughout the collapse of the FTX Token and the subsequent withdrawal freeze, Bankman-Fried insisted that talk of insolvency at FTX had no basis in fact and had merely been whipped up by the media.
Only on Thursday (November 10), for example, Bankman-Fried wrote a long Twitter thread in which he sought to downplay the significance of the withdrawal freeze relative to the company’s overall financial health.
“FTX International currently has a total market value of assets/collateral higher than client deposits,” he said.
“But that's different from liquidity for delivery, as you can tell from the state of withdrawals.”
Highlighting the separation of FTX US from the rest of the group in terms of liquidity, Bankman-Fried also said that every single FTX US customer could withdraw all their funds immediately.
“This was about FTX International,” he said. “FTX US, the US-based exchange that accepts Americans, was not financially impacted by this s**tshow.”
Following the publication of the FTX press release announcing the company’s bankruptcy, Bankman-Fried followed up with a personal apology to his followers on Twitter.
“I'm really sorry, again, that we ended up here,” he said. “This doesn't necessarily have to mean the end for the companies or their ability to provide value and funds to their customers.
“I'm going to work on giving clarity on where things are in terms of user recovery ASAP. I'm piecing together all of the details, but I was shocked to see things unravel the way they did earlier this week.”
In the replies to Bankman-Fried’s tweets, many FTX users voiced their confusion as to why FTX US is filing for bankruptcy one day after Bankman-Fried said it is not affected by the liquidity issues.
“Bro, you literally said yesterday that FTX US is completely fine,” wrote one well-known crypto trader on Twitter. “Are you like a sociopath or a pathological liar or something?”
Another crypto winter?
Elsewhere in the industry, analysts such as J.P. Morgan are predicting a “cascade” of margin calls following the FTX bankruptcy.
“Given the size and interlinkages of both FTX and Alameda Research with other entities of the crypto ecosystem, including DeFi platforms, it looks likely that a new cascade of margin calls, deleveraging and crypto company/platform failures is starting,” said Nick Panigirtzoglou, flows and liquidity strategist at J.P. Morgan.
Panigirtzoglou added that this process will be similar to what the crypto industry already suffered in May and June this year following the collapse of the TerraUSD stablecoin, to which every major player in the crypto industry had some exposure.
Alameda’s $8bn of reported liabilities "is big enough to create a similar wave of deleveraging to that seen following the $20bn TerraUSD collapse”, said Panigirtzoglou, as quoted by ZeroHedge.
“And similar to what we saw after the collapse of TerraUSD, this deleveraging is likely to last for at least a few weeks, unless a rescue for Alameda Research and FTX is agreed quickly."
The rise and fall of Bankman-Fried
As the crypto industry braces itself for more systemic damage, it is worth putting Bankman-Fried’s remarkable rise and fall into context.
After graduating from the Massachusetts Institute of Technology (MIT) with a degree in physics and mathematics, Bankman-Fried went on to work for hedge fund Jane Street Capital, where he traded international funds.
In 2017, he set up his Alameda Research, his own trading firm, and in 2019 he set up FTX.
As the crypto markets exploded higher in 2020 and 2021, Bankman-Fried became a self-made billionaire while still in his late 20s.
According to Forbes, his personal wealth peaked at an estimated $26.5bn, but it was largely tied up in ownership of about half of FTX and a share of its FTT tokens.
Nonetheless, by that point Bankman-Fried had already turned his attention to the political realm, and in May this year he promised to donate up to $1bn to Democrat candidates in the run-up to the 2024 election.
As of last month, as reported by VIXIO, Bankman-Fried was already the second-largest donor to the Democrat party after George Soros, having given more than $40m to Democrat candidates so far this year.
Alas, Bankman-Fried now seems set to take his place in crypto’s fast-growing hall of infamy, alongside the likes of Celsius CEO Alex Mashinksy, Terraform Labs CEO Do Kwon and Three Arrows Capital CEO Zhu Su.
At one point, all of these men sat atop multi-billion-dollar crypto empires, and eventually all of them went bust.
