Many people, from high-ranking businessmen to regular investors, are eager to complete their tasks in the relevant field as a result of the market's intense interest in cryptocurrencies.

In the same way, a very well known MIT graduate started with the crypto exchange platform FTX which readily turned out to be a successful exchange platform.

A few months ago, Sam Bankman-Fried, also known as SBF, established himself as the crypto industry's "white knight" when he and his company FTX provided support to businesses struggling in this year's "Crypto Winter."

He was personally worth over $16 billion and his firm was worth $32 billion, but a few blunders caused all of it to vanish in just a couple of days!

This must have definitely led to a stream of questions in your mind, out of which the most important one is, “Why did such a successful plan fail so drastically?”

Let’s start by answering your question, the famous entrepreneur Bankman-Fried who was the face behind FTX, first started his journey by founding Alameda.

Still, when Alameda started failing, Fried transferred the funds from his exchange FTX to Alameda, these funds included customer’s fiat money deposits as well as FTT Tokens, which ultimately led to panic among the users.

The panic rose even more when Alameda’s balance sheet leaked.

As soon as the balance sheet was released, many investors tried to withdraw their invested money from the FTX Platform but failed. Everyone knows that FTX is a Crypto Giant and withdrawal issue in such major giants is an indicator of something serious.

This led to mass withdrawal of invested money from FTX but the withdrawals couldn’t be processed. On adding some facts and stats, it was found that close to $1 Billion worth of invested money was stuck on this platform which ignited a sense of panic in all those who invested via FTX.

The liquidity Issues and Withdrawal issues collaboratively led to a major dent in the reputation and market value of FTX.

This didn’t stop there!

In addition to these major flaws coming FTX’s way, Changpeng Zhao, CEO of Binance, tweeted something that further contributed to FTX's demise.

Zhao was one of FTX's original investors,  however, because of tension between the two founders, Zhao ended up selling Binance’s FTT stockpile which hurt the token value.

This also caused all the worried investors to start selling their FTT Tokens in exchange for fiat money leading to an unforeseen crisis.  

All of this started to go wrong early in November when the cryptocurrency magazine CoinDesk published a shocking article that cast doubt on the stability of Bankman - Fried's enterprise.

Despite the fact that Alameda Research and FTX are independent businesses, the study discovered that the majority of Alameda's assets were linked to the FTT cryptocurrency that FTX created. Technically speaking, there is nothing wrong with it, but FTX's liquidity was called into doubt, according to CoinDesk.

After a few days of calling the liquidity of FTX into consideration, the tweet of Changpeng Zhao came up and it gave a solid boost to the downfall of FTX and SBF.

FTX’s downfall was not limited only to the fact that they filed for bankruptcy but they were also hit by a massive storm of hacks, i.e. the FTX US faced a major cyber attack which flew away hundreds & millions of dollars present in the crypto exchange wallets.

Since investors and market capitalists were concerned about the drained exchange wallets, numerous remarks regarding this hack were made. However, the CEO of FTX promised the public that funds will be transferred into a fresh cold custodian wallet.

Other measures were also being taken to manage the situation at FTX, one of the major relief signs that were available to FTX was the line of investors they were getting. One of the biggest names among those was that of Binance CEO, Changpeng Zhao.

Zhao's interest in FTX had been going on for a long time. From being an investor to almost purchasing the company, histories of both the platforms, Binance and FTX, were intertwined.

However, Zhao abruptly claimed that he was moving away from his decision to buy FTX, which ultimately caused FTX to collapse.

The official statement issued by the personnel was that they were planning on acquiring FTX so that they could provide their customer base with liquid exchanges. But, after seeing FTX’s current situation, they think it may be beyond their ability to solve & handle the current situation.

Numerous well-known investors, including SoftBank Vision Fund, Tiger Global, Sequoia Capital, and BlackRock, supported FTX. But, Sequoia announced that it is reducing its investment in FTX from $213.5 million to $0; the illustrious VC company had previously made $213.5 million in FTX.

Then there's Bankman-Fried's inner circle, a team of ten individuals who shared his home and operated FTX and Alameda from the Bahamas.

According to CoinDesk, the group was a mix of his college pals and previous coworkers and was deeply entwined with Bankman-Fried's enterprise. So it's likely that they are currently experiencing significant losses as well.

The White knight of the crypto industry whose personal net worth touched around $16 billion a few months back is now explaining how his mistakes made all that net worth disappear in a snap. Amidst this very tough year for the crypto industry, this whole affair has shaken the crypto world for the worse.

Conclusion:

The cryptocurrency industry has seen a very tough year and somewhere or the other, it is still going through a very difficult phase after seeing a $2 trillion fall in May.

The FTX controversy is currently having an impact on the whole crypto sector. According to CoinMarketCap, it caused the sector's value to drop 12% in one day and sparked concerns that cryptocurrency is set to experience its own Lehman Brothers moment.

According to industry insiders, the drama may prompt regulators to try to rein in the cryptocurrency market or make major banks hesitant to allow consumers to trade cryptocurrencies. Additionally, analysts believe that the FTX crisis may spread panic among consumers, which would prompt them to remove their crypto assets. This is known as contagion.

As additional dominoes are yet to fall, it's likely that FTX's collapse is only the start of a larger crypto reckoning.

Companies may be required to alter their conduct going ahead, or authorities may do it for themselves by tightening their screws. The banking industry underwent significant reform in 2008, with brand-new organizations established to control the greatest excesses that contributed to the catastrophe.