With the aftermath of LUNA still lingering, this week, the crypto market got itself into another crisis in the form of the FTX exchange. FTX is one of the leading exchanges in the world and has been performing well this year, and is valued earlier this year at $32 billion. Nonetheless, although everything on the surface seems great, things were dark underneath. As things turned out, the FTX exchange declared bankruptcy this week, leaving many of its users unable to withdraw their funds. This has caused yet another big scare for the crypto market, pushing BTC to its lowest price this year.
What happened to the FTX exchange?
The well-known CEO (now ex-CEO) Bankman-Fried of FTX founded two companies - FTX exchange and Alameda Research, which is a crypto hedge fund company.
Worrying concerns about FTX started last week when an article by CoinDesk stated that a large portion of Alameda Research's assets consists of FTT, FTX's native token (much like BNB to Binance). However, FTT is illiquid, and this article raised fears regarding the capital reserves at Alameda Research and FTX.
In response to this news, the CEO of Binance, Changpeng Zhao (CZ), said that he would sell the company's $580 million worth of FTT. A sale of this large scale inevitably triggered an even larger selloff totaling about $5 billion in a single day causing the price of FTT to plummet. Furthermore, FTX users, uncertain about the future, rushed to withdraw their assets from FTX.
Due to the lack of funds and the volume of withdrawal requests, FTX halted their withdrawals. Binance did announce buying FTX and bailing them out from the crisis, but the deal was off within a few days of discussion, leaving FTX to file for bankruptcy, and users' funds vanished.
Another famous tale of "Not your keys, Not your coins"
This is yet another story of a crypto crisis that emphasized the importance of storing cryptocurrency in wallets instead of exchanges. Even though an exchange might look good on the outside, we can never know for sure what is going on inside and if our funds stored with them will be safe.
Take the story of the FTX exchange, for example, the collapse happened only within a week. Just when we thought BTC was starting to recover and many Alts coins like DOGE were seeing higher volumes. Many FTX users who didn't withdraw in time will never be able to recover their money back again. Not to mention, if it was a hack instead, users will not even have time to anticipate and withdraw beforehand.
Instead of storing cryptocurrency on an exchange and exposing yourself to the risks of losing your funds forever, it is better to store them inside wallets. Cold wallets like the ELLIPAL allow you to store crypto securely, and offline, and gives you the option to recover your funds anywhere with the help of private keys. No matter which crisis the crypto market will face in the future, your funds will always be safe.
Will FTX users get their money back?
It is good news that FTX resumed withdrawals after a pause last week but there are other risks for the crypto world. Some crypto businesses with financial relationships to FTX may run into trouble as well. BlockFi, which had been planned to be acquired by FTX, stopped its withdrawals last week and still had not resumed them as of Monday.
Although some withdrawals have resumed, customers of the bankrupt FTX exchange could have to wait many years to get their money back. According to experts, some might never get their money back.
First of all, FTX's creditors will be the first to receive assets that the bankruptcy judge feels appropriate to distribute as the company is trying to restructure as part of its Chapter 11 filing. Investors in the Bahamas-based company that raised $2 billion in venture capital will be second to get compensated.
That leaves normal FTX users to be the last to get their money back, a bankruptcy expert told CBS MoneyWatch.
Another expert from St. John's University, law professor Anthony Sabino, expects those customers to, at best, get back only a portion of their assets.
What's the safest way to store crypto？
Instead of storing cryptocurrency on an exchange and exposing yourself to the risks of losing your funds forever, it is better to store them inside wallets. Cold wallets like the ELLIPAL allow you to store crypto securely, and offline, and gives you the option to recover your funds anywhere with the help of private keys. No matter which crisis the crypto market will face in the future, your funds will always be safe.