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By Alessandro Albano
Investing.com – From a $32 billion valuation to insolvency risk. This is what happened in less than a week to FTX, the world’s third largest crypto-exchange in terms of volume, an earthquake that led to a retest of $15,000 (-25% in a few days), its lowest level since October 2020.
That of FTX is not the only “crypto-crash” of 2022, if we add the collapse of the stablecoin and the bankruptcy of Celsius, a cryptocurrency lending company with more than 1.7 million registered users.
What happened ?
The story began last November 2, when rumors first surfaced that the $8 billion mega-debt of Alameda Research, a trading company founded by former FTX founder Samuel Bankman-Fried, was in fact widely collateralized by , tokens issued by FTX itself.
The news broke, and in an attempt to stem a liquidity crunch that was soon to erupt in digital markets, Changpeng Zhao, Founder and CEO of Binance, announced the sale of FTT for $500 million, resulting in a crash of the token and a consequent rush of withdrawals from clients who, in the meantime, were beginning to experience significant losses.
FTX froze withdrawals, “de facto freezing its clients’ assets,” CheckSig managing partner Michele Mandelli recalled in a note, and, through a deal (which later fell through) with Binance, sought to be bailed out by its rival.
The operation fell through and, as Mandelli explains, FTX is now looking for a “white knight, who would be Justin Sun, founder of Tron and another billionaire crypto-entrepreneur”.
The feasibility of the operation is however far from certain, “both because of the extremely short deadline and the lack of clarity on the real size of the hole”, adds the managing partner of CheckSig, an Italian platform founded in 2019 which deals with the management of cryptoassets for individual and institutional investors.
It is the shareholders of FTX, and especially the customers – whose savings are always blocked, even evaporated – who must pay, underlines Mandelli.
The lesson of FTX
“The FTX crisis demonstrates once again that the crypto-asset universe needs stronger regulation and transparency, especially given the potential ripple effects that can ripple through traditional markets” , says the manager.
Indeed, the now appears on the balance sheet of many banks and investment funds, while equity funds, banks, private equity funds and venture capital have a high exposure to private and publicly traded cryptocurrencies in as shareholders or creditors.
Similar transactions in traditional finance would have come under intense scrutiny from regulators, which is why the head of CheckSig is adamant that “cryptoassets are still a Wild West where transparency matters.” often lacking”,
“Transparency and regulation are therefore increasingly a pressing need in the world of crypto-assets, and the cornerstone from which to build this new trust is that of the back-up test, which in the case of FTX has made This is an independent, third-party check to ensure that the custodian holds the assets it claims to hold on behalf of its clients.However, this is still done by too few people. ‘players in the sector, and should rather be a market standard”, concluded the managing partner.