The FTX collapse refers to the sudden bankruptcy and failure of FTX, once the world's third-largest cryptocurrency exchange by volume. In November 2022, the exchange filed for bankruptcy after revelations of commingling customer funds with its sister trading firm Alameda Research.
The collapse resulted in an estimated $8 billion in customer losses and led to criminal charges against founder Sam Bankman-Fried, who was convicted of fraud and conspiracy in November 2023.
Warning Signs
Several warning signs were apparent before the collapse, though they were largely ignored by the broader cryptocurrency community:
Lack of Proper Accounting
FTX operated without a chief financial officer for much of its existence and lacked proper internal controls. The company used QuickBooks for accounting, which experts noted was inadequate for an entity handling billions in assets.
Celebrity Endorsements Masking Problems
FTX spent heavily on celebrity endorsements and marketing, including Super Bowl advertisements and naming rights to Miami Heat's arena. These high-profile campaigns created a veneer of legitimacy that masked underlying financial problems.
Impact on the Cryptocurrency Industry
The FTX collapse had far-reaching consequences beyond the direct losses suffered by customers and investors. It triggered increased regulatory scrutiny of the entire cryptocurrency sector and led to a crisis of confidence in centralized exchanges.