Recent updates on FTX’s bankruptcy have made headlines, revealing plans to fully repay creditors.

This blog will explain these developments and explore the broader cryptocurrency issues they bring to light.

What is FTX?

One method of acquiring cryptocurrency is through a digital trading platform.

Here, users can purchase, trade, and convert cryptocurrencies into cash or other standard currencies.

FTX served as one of these platforms.

Founded in 2019 by Sam Bankman-Fried, FTX quickly attracted customers interested in trading cryptocurrency. By January 2022, FTX was valued at $32 billion.

What happened to FTX?

In November 2022, FTX filed for bankruptcy and Bankman-Fried resigned as CEO. He was arrested a month later. 

According to the Justice Department, he faced charges including two counts of wire fraud and one count of conspiracy to commit money laundering.

Additional charges included securities fraud and defrauding the United States.

This month, FTX revealed that they plan to fully settle their $11bn debt. The new CEO, John Ray, stated:

“We are pleased to propose a plan that contemplates returning 100% of bankruptcy claim amounts plus interest.”

What does this say about cryptocurrency?

Legally, FTX creditors will get their money back, but they may regret missing the recent increase in cryptocurrency values.

The FTX collapse forced them to sell their holdings at low prices, as the rapid decline in asset values and the platform’s instability prevented them from selling at better rates.

According to the bankruptcy plan, after paying off claims, creditors could get an extra 9% interest if there’s enough money left. 

But since Bitcoin’s price jumped from $16,080 in November 2022 to $62,675, those who sold early might have lost up to 290%, even after getting the extra interest.

 The FTX situation highlights some of the risks associated with cryptocurrency:

• Unlike traditional assets like stocks and bonds, cryptocurrencies are much less regulated, which can make them more susceptible to fraud and other financial risks

• If investors get caught in a fraud, not only could they lose a lot of money, but they can also face long waits to recover their losses 

• Even if investors do get their money back, they may not recover what they could have earned if their funds were invested elsewhere

• The FTX scandal highlights how volatile cryptocurrency markets can be. Media greatly affects these markets. Good news can raise prices. Bad news can cause them to drop quickly. 

In November 2022 when reports of FTX’s problems surfaced, cryptocurrency prices fell dramatically. This lead to major losses for many investors

What can I do now?

We’ve looked into the FTX situation and its effects on cryptocurrency, pointing out some of the potential risks.

To learn more, click here to explore our other resources, or take one of our interactive quizzes.