The unexpected crash of the second largest Cryptocurrency exchange in the world known as FTX exchange is something every crypto trader, especially those trading with the FTX exchange, will never forget in a jiffy. The crash of this exchange brought so much pain to its users totaling about 5 million after the founder of the exchange announced the exchange had gone bankrupt and was no longer able to process clients’ withdrawal requests. The CEO Sam Bankman-Fried further went public to apologize to traders for their inability to pay those who have deposited with the exchange after he filed for bankruptcy protection under the US laws.
In less than 72 hours after the news, over 200 billion was withdrawn from the crypto market. Will these funds return? Will new traders still trust to trade with Centralized crypto exchanges? What impact will the crash of the FTX exchange have on the entire crypto market? Well, this work will help you find answers to these pressing questions.
Why Did The FTX Exchange Crash?
The FTX crypto exchange crash took place during the first week of November 2022, and was ignited by a viral report from Coindesk which highlighted the solvency questions concerning this exchange as well as its related crypto trading company called Alameda research for storing a greater portion of its assets using the exchange native token known as FTT.
As a result, investors were quickly alarmed and rushed to sell-off their holdings of the FTT tokens. Its rival crypto exchange Binance was amongst the first to liquidate its holding of the FTT token worth over $500 million. Other investors followed suit and the exchange token FTT crashed to $2.5 in less than 48 hours from its previous high of $28 the previous day. This left the exchange bankrupt and unable to process withdrawals having stored most of its reserve funds in the native token it has created.
Next, the founder of this exchange moved to file for Chapter 11 bankruptcy under US laws, after his attempt to raise funds to repay clients was unsuccessful. He publicly apologized to investors trading with the exchange and announced that they will need over $6 Billion in capital to be able to process the investors’ withdrawal requests.
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What Effect Will The FTX Collapse Have On The Future Of Crypto?
The major impact the FTX exchange will have on investors in the future is to develop some distrust for buying Cryptocurrency with the Centralized Crypto exchanges. This will so much reduce the amount of capital flowing into the crypto exchanges in the future as large investors will all the more; be fearful over the security of their funds. Based on this note, for instance, investors who have been deeply affected by the crash of the FXT exchange had filed a class action lawsuit at Florida Federal court against the CEO of the exchange – Sam Bankman-Fried, accusing him of founding a fraudulent crypto exchange to designed to take advantage of unsuspecting investors after they have deposited with the exchange.
This impression which has gone down the minds of many crypto traders that the Centralized crypto exchanges are not reliable will likely deter new investors from joining cryptocurrency investments in the future.
Important Lessons To Learn From The FTX Exchange Crash
- All crypto investment bears risk to the investors’ capital.
- All the centralized crypto exchanges must provide proof of their reserve funds before investors can trade with them.
- Centralized crypto exchanges are not the best place to store crypto.
- Crypto traders are to be cautious in their investments