Its FTX exchange is now trying to raise US$9.4 billion from both investors and competitors as customers rush to withdraw their funds. Many people trusted FTX as a place to buy tokens or cryptocurrencies such as bitcoin. Now industry watchers say its spectacular fall could be the catalyst that forces governments — including Canada — to crack down on cryptocurrencies. The problem was sparked when the rival owner of the world’s largest exchange, Binance, questioned the stability of FTX on Twitter. This caused a three-day panic that cost FTX about US$6 billion. Binance chief Changpeng Zhao on Wednesday backed out of a proposed takeover of its second-ranked rival, citing regulatory concerns, according to the New York Times. This sent FTX into a tailspin. Bankman-Fried said he is in talks with others about another bailout deal, but made no promises. “I’m sorry. This is the biggest thing. I got it and I should have done better,” he tweeted. Exactly what mistakes were made remains unclear. But cryptocurrency experts say investors’ money that should be “liquid” isn’t. FTX was facing increasing legal and regulatory threats before withdrawals were frozen, according to Samson Mow, CEO of Pixelmatic and JAN3, a new bitcoin technology company. Binance CEO and founder Changpeng Zhao, left, meets El Salvador’s President Nayib Bukele in San Salvador, El Salvador, on March 24. Zhao was briefly ready to buy out FTX. (Press Secretary of the Presidency/Reuters) Mow says the FTX boom has a familiar feel, although digital assets like bitcoin and ethereum weren’t the problem. He says the exchange created tokens called FTTs that were used to store value. FTT was the backbone of FTX, so when its value fell, users tried to get out. Mow says the U.S. Securities and Exchange Commission is investigating and that it appears client money may have been improperly used to help pull FTX subsidiary Alameda Research out of a $10 billion hole. People who bought bitcoins or other currencies through the exchange are now unable to withdraw them. Mow says that bitcoin is trustworthy, but that token-based exchanges like FTT as collateral rely on a set of financial cards. He said users are aware of the risk of being “lazy” and leaving assets unclaimed on an exchange. The Binance and FTX logos can be seen in this image. Bankman-Fried blamed himself for FTX’s losses, though it’s unclear exactly what went wrong. (Dado Ruvic/Reuters) “You bet in a casino that collapsed – and now you’ve lost your money,” said Mou. He says people who didn’t withdraw their digital assets and kept them in their own wallets now can’t access them because FTX used FTT as collateral and those tokens are now worthless, he says. “There’s an old saying – not your keys, not your coins. It’s not a new lesson. People just don’t learn. They gamble – and they got what they deserved.” The collapse of FTX, which was valued at $32 billion not long ago, is just the latest bad news for digital asset investors. Bitcoin prices are less than a third of what they were at their peak in 2021, before a major crash last fall. But Bankman-Fried was seen as an influential player, someone who was “working closely with regulators” to try to regulate the space, said Ashley Stanhope of Ether Capital Corp., a public firm focused on ethereum and a founding member of the Canadian Web3 Council, a group that works with governments to create better investor protections. He had also spent millions helping other companies, claiming to be an advocate of effective altruism, a movement that advocates charitable giving to protect the future of humanity. An advertisement for bitcoin is displayed on a street in Hong Kong on February 17. (Kin Cheung/The Associated Press) Her interpretation of his apology is that he made “genuine mistakes. It doesn’t sound like he was trying to deceive investors or mislead them,” she said. Stanhope says this situation damages the industry’s credibility and that she fears regulators will “paint all crypto with the same brush.” Among FTX’s investors is the Ontario Teachers Pension Plan’s (OTPP) which put more than $126 million on the market between October 2021 and January 2022. OTPP said in a statement Thursday that the “uncertainty” in FTX would have a “limited impact” on the pension plan, as the investment was less than 0.05 percent of its total net assets. As for the FTX losses and how they will affect the industry, Stanhope admits that it is a challenge and that Bankman-Fried’s downfall will likely change the cryptocurrency landscape. “The FTX boom will likely change the approach of investors,” he said. “We will likely see more users removing their assets from centralized exchanges and relying on self-hosted wallets” until exchanges are more secure and transparent, he said.
