The collapse of crypto exchange FTX is the biggest economic and financial story in the world today. The FTX collapse has the potential to spin out of control and affect all capital markets in the same manner as the Lehman Brothers bankruptcy in 2008. But what happened?
FTX had an affiliate trading firm called Alameda. FTX held customer funds in separate accounts to protect customers. But it now appears that the FTX management misused customer funds to support losses in the Alameda trading firm. THe word got around, and a run on the bank started.
First, FTX stopped withdrawals, then the management quit. The exchange and Alameda went into bankruptcy. Over $10 billion in customer funds have disappeared. The remaining $1 billion in funds was hacked and stolen, probably in inside job by the members of the FTX team who knew the computer code. A criminal investigation has started in the Bahamas where FTX was registered. But this is not the end of the story because exchanges that did business with FTX are reporting losses and shutting down. Big losses are spreading through the crypto industry and are starting to effect mainstream firms.
If there is one thing we learned about a financial collapse: it spreads like a virus to unexpected places. We do not know the consequences of the FTX bankruptcy yet. But it could be a start of a bigger thing. Time will tell.
Sven Franssen