Duel of the crypto stars

LSam Bankman-Fried shouldn’t have liked it when he wrote on the news platform Twitter on Thursday: “You’ve won.” He did not explicitly mention who the founder of the crypto trading exchange FTX was addressing. But he didn’t have to. In the crypto world, everyone knew who was meant: CZ, short for Changpeng Zhao. His archrival. The head of the world’s largest crypto trading platform Binance.

FTX files for bankruptcy

This one won because Sam Bankman-Fried’s crypto exchange is broke and will file for bankruptcy in the United States. Changpeng is also to blame for the fact that it has come to this. Just recently, a report was published that strongly questioned the economic stability of the FTX trading platform. But that was not all. The Binance CEO fueled investor concerns by announcing on Twitter that he would divest all of his holdings of the competitor’s in-house cryptocurrency. From then on, the fear in the scene really took off. Confidence was gone, and many investors quickly withdrew their money from the stock market.

And now the crypto world is shaking. The courses of many cryptocurrencies have lost rapidly. Bitcoin has fallen from around 21,000 euros to 15,700 euros within a very short time, and the second largest currency, ether, has also dropped significantly. The violent reaction to the drama surrounding FTX comes as no surprise. After all, it is a major player in the crypto market. In just under three years, FTX has become the third largest crypto exchange in the world. A few months ago it was worth $32 billion.

Sam Bankman-Fried himself, who until recently was considered one of the richest people in the world, has lost more than 90 percent of his wealth in the past few days. The 30-year-old originally studied physics in the United States. In 2019 he founded the exchange FTX and has become a star in the crypto world. In addition, Bankman-Fried is now known for lobbying for the crypto industry in Washington. He used his money to support the Democrats before the American midterm elections, and he is one of the party’s biggest donors. And he describes himself as an “effective altruist” who wanted to donate almost his entire fortune to a good cause.

Doubts about the in-house cryptocurrency

Of course, the founder is not entirely innocent of the current chaos. After all, he is responsible for the dubious construct that caused concerns about liquidity to germinate in the first place. In a nutshell, the problem revolves around the cryptocurrency FTT, which was issued by the FTX platform and can be traded there. The hedge fund Alameda Research, which was also founded by Bankman-Fried, is said to have held a large part of this cryptocurrency and also used its own quasi-play money as collateral for loans, according to an analysis by the online medium Coindesk. So there were great doubts as to how well the self-developed cryptocurrency could be traded and what it was good for.

But the fact that FTX’s rival, of all people, has exacerbated the problem and triggered the crash with its sale of the cryptocurrency increases the frustration enormously. Especially since the competitors pulled together some time ago: Changpeng Zhao was once one of the big investors in FTX with Binance. But there was a separation, the reason for which is said to have been a different understanding of how to run a company.

Last rescue attempts have failed

Changpeng Zhao himself has expanded his company Binance into the largest trading platform for cryptocurrencies in the world. He is also a celebrity in the crypto industry. The fortune of the Chinese-Canadian entrepreneur is estimated at several billion dollars, although this estimate also fluctuates greatly – because of the high investments in cryptocurrencies, the prices of which move up and down.

The two cryptostars make no secret of their rivalry. In the past few months, they have repeatedly written not exactly friendly messages about each other on Twitter. Now the next level of escalation followed, when the Binance boss questioned the competitor’s liquidity.

In this tricky situation, Sam Bankman-Fried obviously couldn’t find any more investors who would secure the liquidity of his stock exchange. And so, in his distress, he had to turn to the very person who had gotten him into this trouble, Changpeng Zhao.

At first it seemed certain that this would bail him out and take over the competitor. The Binance boss himself said that he had not planned all of this before. He also previously knew little about the internal conditions at FTX, he wrote in a leaked email to his employees. Shortly thereafter, however, he withdrew the project. The FTX books have been checked and there is no way to help, according to the official explanation.

The remorseful Sam Bankman-Fried

Hundreds of thousands of investors from all over the world are now worried about their money. Your crypto assets are frozen. It is still unclear what legal consequences all of this will have. The demands to finally regulate the crypto industry better have consequently increased significantly.

Sam Bankman-Fried is rueful. He apologized to investors, his employees and investors. He screwed it up, he says. In a statement, he admitted defeat to his rival Changpeng Zhao. He would like to comment on this in more detail at a later date. He resigned as head of FTX on Friday.