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Timeline of Cryptocurrency Exchange FTX's Epic Collapse

The FTX cryptocurrency exchange was valued at $32 billion in February. It imploded within days, causing one of the biggest financial fiascos of the decade.
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FTX announced on Jan. 31, 2022, that it had raised $400 million from major investors such as Softbank, Temasek, Tiger Global and others. 

The funding propelled its valuation to $32 billion, more than many long-established companies. As TheStreet wrote at the time, it was a big jump of $7 billion in valuation in just three months.

Ten months later, the platform, which allows you to buy and sell cryptocurrencies like bitcoin (BTC) and ether (ETH), would be bankrupt.

The shock caused by the overnight implosion of one of the firms considered to be the most financially solid in the cryptocurrency industry, is enormous.

In addition to a who's who of investors, FTX also had the biggest names among its ambassadors: NFL legend Tom Brady and his ex-wife supermodel Gisele Bundchen, NBA legends Stephen Curry and Shaquille O'Neal, tennis star Naomi Osaka, entrepreneur star of hit TV show Shark Tank Kevin O’Leary, and "Seinfeld" creator Larry David.

It will take many months to piece together what really happened, establish full accountability and assess collateral damage, due to FTX being a central piece of the cryptocurrency industry.

What is known is that the firm ran out of cash when its customers rushed to withdraw their money by selling the cryptocurrencies they had previously purchased on the platform. FTX was using the client cryptocurrencies as collateral to borrow money which in turn had transferred to Alameda Research, a trading platform with which it shares several links. Alameda used this money to invest in crypto businesses and also for trading operations.

It is important to keep in mind that the fall of FTX is linked to that of Alameda.

FTX and Alameda were founded by former trader Sam Bankman-Fried, 30, in 2017. Bankman-Fried was the institutional face of the cryptocurrency industry. He was a regulator-whisperer and a big donor to the Democratic Party. His meteoric rise made him one of the richest men in the world with a fortune that exceeded $21 billion, but evaporated in a few days between Nov. 8 and Nov. 11.

FTX customers and investors have no certainty today that they will be able to recover their money/cryptocurrencies. Below is the timeline of the series of events which led to the brutal and rapid fall of FTX.

Nov. 2: 

News outlet Coindesk publishes an article raising concerns about the financial health of FTX and Alameda Research. The article claims that the assets of Alameda Research consist of FTT, the cryptocurrency issued by FTX. 

The revelations cause great concern for the following reasons: FTX was using FTT as collateral on its balance sheet. This represented a significant exposure, due to the concentration risk and the volatility of FTT. This therefore raises fears about the capital reserves of Alameda and FTX.

Nov. 6: 

Billionaire Changpeng Zhao, CEO of Binance, FTX's rival exchange, announces that Binance was going to sell about $530 million of FTT, in response to Coindesk's information. That triggers a run on the bank. 

The rush of investors to withdraw their money and cryptocurrencies causes a liquidity crunch. About $5 billion would be withdrawn on Nov. 6 from FTX, Bankman-Fried says.

Nov. 7:  

In a now deleted tweet, Bankman-Fried assures that the assets are fine.

"A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine," he says on Nov. 7. " FTX has enough to cover all client holdings. We don't invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be."

Nov. 8:

Thunderclap: Bankman-Fried and Zhao announce that they have reached an agreement for the acquisition of the empire of the former by the latter. The finalization of the deal is pending due diligence.

Bitcoin is falling. The values ​​of cryptocurrency-related companies like Robinhood and Coinbase are plunging in the stock market.

Nov. 9: 

Another blow: Binance announces that it is withdrawing its acquisition offer because the situation is more serious than the company originally thought.

"As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com," Binance said.

Zhao sums up the general sentiment in the crypto industry that day: "Sad day. Tried, but 😭."

Panic has now set in. FTX is left to its fate. There is no longer any doubt that the unthinkable is now reality. In the evening, the venture capital firm Sequoia, a major investor in FTX, writes off its entire investment in the platform.

In a letter Sequoia states that it values the $210 million investment into FTX as $0 and considers it a total loss.

Bankman-Fried meets with investors and tells them that, without an injection of fresh money, his group will have to file for bankruptcy, reports Bloomberg News. The 30-year-old boss estimates he needs $8 billion to meet FTX's obligations. He would like to raise this money in the form of debt, equity, or a combination of the two.

The U.S. Securities and Exchange Commission (SEC) is deepening its investigation into FTX, Bloomberg News reports. The Commodity Futures Trading Commission (CFTC) is also investigating the cryptocurrency exchange.

In addition, the U.S. Department of Justice (DoJ) launches its own probe, according to the Wall Street Journal.

Nov. 10: 

One of the Bahamian financial regulators announces that it will freeze FTX's assets. The company's headquarters are in the Bahamas, where Bankman-Fried also lives.

"The Securities Commission of The Bahamas (the Commission) took action to freeze assets of FTX Digital Markets and related parties. The Commission also suspended the registration and applied to the Supreme Court of The Bahamas for the appointment of a provisional liquidator of FTX Digital Markets Ltd," the Commission says in a statement.

Bankman-Fried apologizes: "I'm sorry," he writes on Twitter, thus breaking a 2-day silence. "That's the biggest thing." He added: "I f----- up, and should have done better."

Tongues are starting to loosen in the crypto sphere. Brian Armstrong, CEO of Coinbase  (COIN) - Get Free Report, says he was surprised by the fury of Bankman-Fried acquisitions.

"I was surprised at how much cash that they seemed to have and Sam seemed to have to go out and perform various investments in the markets, both their ventures arm and, you know, buying 9% of Robinhood and other political organizations," Armstrong tells CNBC in an interview. 

Nov. 11: 

What the whole crypto sphere dreaded happens: FTX files for bankruptcy along with all its subsidiaries and all the other Bankman-Fried businesses. He is forced to resign. A new CEO is appointed to lead the restructuring of the cryptocurrency empire of the former king. John Ray, the new CEO and chief restructuring officer, was the liquidator of energy broker Enron.

"FTX Group Companies commence voluntary Chapter 11 proceedings in the United States," the firm said in a statement posted on Twitter. "Sam Bankman-Fried has resigned his role as Chief Executive Officer and will remain to assist in an orderly transition."

Nov. 12: 

Bankman-Fried is questioned by the police in the Bahamas, where the authorities have opened a criminal investigation.

FTX lent customer deposits to Alameda Research to help it meet its liabilities, and top executives at Alameda Research were aware of it, the Wall Street Journal reports. This raises additional questions about the relationship between Alameda Research and FTX.

Nov. 13: 

Between $1 billion and $2 billion of FTX client funds have vanished from the platform, Reuters reports. Bankman-Fried reportedly transferred $10 billion of customer funds from FTX to his cryptocurrency trading platform Alameda Research. Much of that money has disappeared. FTX's financials show there is a "back door" in the books that was created with "bespoke software," Reuters said. It is described as a way to alter the firm's financial records without alerting third parties like auditors.

But Bankman-Fried denies the existence of a "back door."

Nov. 14: 

Eminent crypto lender BlockFi, which was bailed out in the summer by FTX, announces that it is suspending withdrawals from its customers.

"We determined late last week that in the current environment we could no longer operate our business as usual. Given that FTX and its affiliates are now in bankruptcy, the most prudent decision for us, in the interest of all clients, is to continue to pause many of our platform activities for now," the company says in a statement.

"At this time, withdrawals from BlockFi continue to be paused. We also continue to ask clients not to submit any deposits to BlockFi wallet or interest accounts."

FTX is under investigation by federal prosecutors in New York, ABC reported. Investigators want to determine whether the company violated securities laws when it gave customer funds to Alameda Research.

Nov. 16: 

Politicians get involved, especially the Democrats who are under pressure, given that Bankman-Fried was a mega donor to the party. Members of the House are requesting testimonies from Bankman-Fried, top executives from FTX and Alameda at a hearing in December. The date has not yet been set.

"The fall of FTX has posed tremendous harm to over one million users, many of whom were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it all disappear within a matter of seconds," Rep. Maxine Waters, D-Calif., says in a statement.

"Unfortunately, this event is just one out of many examples of cryptocurrency platforms that have collapsed just this past year. That’s why it is with great urgency that I, along with my colleague ranking member McHenry, announce the Committee’s intention to hold a hearing to investigate the collapse of FTX."

Bankman-Fried gives regulators the middle finger in an exchange with a journalist from Vox.

"F--- regulators," the former billionaire writes. "They make everything worse. They don't protect consumers at all."

The same day in a series of tweets he indicates that he did not really know that the finances of FTX were in the red. 

"Problems were brewing. Larger than I realized," he writes on Nov. 16. "[AGAIN THESE NUMBERS ARE APPROXIMATE, TO THE BEST OF MY KNOWLEDGE, ETC.] Leverage built up-- ~$5b of leverage, backed by ~$20b of assets which were....Well, they had value. FTT had value, in EV! But they had risk."

"And that risk was correlated--with the other collateral, and with the platform. And then the crash came. In a few day period, there was a historic crash--over 50% in most correlated assets, with no bid side liquidity. And at the same time there was a run on the bank."

And there he utters what appears to be unthinkable:

"Roughly 25% of customer assets were withdrawn each day--$4b. As it turned out, I was wrong: leverage wasn't ~$5b, it was ~$13b. $13b leverage, total run on the bank, total collapse in asset value, all at once. Which is why you don't want that leverage."

He says that he thought the leverage was $5 billion and later discovered that it was almost three times that amount. This admission frames two alternatives. In the first, Bankman-Fried is sincere and didn't really know what was in FTX's books, which makes him look incompetent or ignorant at best. In the second, Bankman-Fried is lying and FTX allegedly embellished its accounting.

In both cases, this revelation clearly indicates that there was a complete absence of risk management. His reference to correlated risk means that, an adverse market event would simultaneously impact multiple assets negatively, requiring more capital to withstand losses. Extreme leverage and correlated risk in a highly-volatile industry was a disaster waiting to happen.

The debacle continues to spread to other exchanges. Crypto exchange Genesis confirms on Wednesday that it has stopped customers from making withdrawals and issuing new loans. The problems at Genesis directly affect crypto exchange Gemini, founded by millionaire twins Tyler and Cameron Winklevoss. Genesis was the lending partner of Gemini.

Nov. 17: 

John Ray, FTX's liquidator, paints a very damaging picture of the Bankman-Fried regime in court documents.

"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here," Ray writes in a 30-page document filed with the United States Bankruptcy court in the District of Delaware.

"From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented."

Each page is a bombshell, an indictment of the Bankman-Fried regime. For Ray, the former trader and his two associates -- Zixiao "Gary" Wang and Nishad Singh -- failed on several levels.

"Unacceptable management practices included the use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data for the FTX Group companies around the world," the seasoned restructuring veteran wrote.

According to John Ray, Bankman-Fried received a personal loan of $1 billion from Alameda. The firm also gave a $543 million personal loan to Singh, and $55 million to Ryan Salame, the co-CEO of FTX Digital Markets, one of FTX's affiliates.

"In the Bahamas, I understand that corporate funds of the FTX group were used to purchase homes and other personal items for employees and advisors," the seasoned executive said.

"I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas."

Nov. 19: 

Ray announces that he is starting a strategic review of FTX's assets and that he has recruited an investment bank to help him with this task. All options are on the table, including a sale of the assets.

"The FTX debtors have engaged Perella Weinberg Partners LP as lead investment bank and commenced preparation of certain businesses for sale or reorganization," Ray says in a statement.