NEW YORK (TBEN) — Just days after the third-largest cryptocurrency exchange collapsed, the public is starting to get a sense of just how messy FTX’s bankruptcy case could be. Other crypto companies fail due to the unraveling of FTX, events reminiscent of the domino-like meltdowns of the 2008 financial crisis.
Users were left frustrated in the dark on Tuesday as to when they would be able to get their money back, if at all, and directed much of their anger at FTX founder and CEO Sam Bankman-Fried.
In a lawsuit, FTX’s lawyers said there have already been more than 100,000 claims against the company and that figure could grow to more than 1 million, most of them customers, once the case is closed. The court ordered FTX to provide at least a list of the company’s 50 largest creditors by November 18.
The lawyers said the company is in contact with the Justice Department, the Securities and Exchange Commission, the Commodity Futures Trading Commission and dozens of other state, federal and international authorities, confirming previous reports that the US government is investigating the possibility that Bankman- Fried and his lieutenants violated US securities laws.
FTX filed for bankruptcy protection on Friday, sending tsunami-like waves through the cryptocurrency industry, which has seen its fair share of volatility and turmoil this year, including a sharp drop in price for bitcoin and other digital assets. To some, the events are reminiscent of the failures of Wall Street firms during the 2008 financial crisis, especially as supposedly healthy companies like FTX go bankrupt.
The Wall Street Journal reported that BlockFi, which halted recordings over the weekend after FTX’s bankruptcy, is now actively considering bankruptcy and plans to lay off its staff. In previous public comments, BlockFi’s management made it clear that FTX’s failure had driven the company into bankruptcy. FTX had provided financial assistance to BlockFi this summer, including a $400 million credit facility backed by its own balance sheet.
“We are shocked and appalled by the news about FTX and Alameda,” BlockFi said Saturday, referring to FTX and Bankman-Fried’s hedge fund Alameda Research. “Given the lack of clarity on the status of FTX.com, FTX US and Alameda, we cannot continue as usual.”
Another crypto company, crypto lending company SALT Blockchain, also appeared to be on the verge of collapse. The company Bnk to the Future pulled out of its agreement to buy SALT, citing its exposure to FTX. In tweets, the CEO of SALT Shawn Ears said he is “fully committed to still recovering from the damage suffered as victims.”
To show how worried investors are that the cascading effects could do long-term damage, cryptocurrency exchange Binance proposed creating a bailout fund that would save otherwise healthy crypto companies from failure. Binance founder and CEO Changpeng Zhao effectively explained the ability of a crypto-like central bank or deposit insurance pool to be a lender of last resort to prevent healthy companies from going out of business.
Meanwhile, FTX users lamented their losses in Telegram chat groups for merchants using the FTX exchange, writing that they lost access to amounts ranging from thousands to millions of dollars.
Some pleaded for information. Others speculated on the likelihood of getting their money back, while others said they had to accept that their investments were gone.
Moderators for one group intermittently posted things like, “No death threats please.” They wrote that they had no information about Bankman-Fried’s whereabouts or what would happen to his companies.
“No news,” a moderator posted.
Many users of FTX pointed to Bankman-Fried as responsible, making puns on his name as “Sam Bankrun-Fried” and calling for prosecution.
Tuesday a support account for FTX US responded on Twitter to messages from people asking for their money and directing them to send messages to the Twitter account to get help.
Mohit Sorout, 30, said he lost access to 95% of the value of his cryptocurrency holdings when FTX shut down its services last week. post on Twitter“The pain is f(asterisk)(asterisk)(asterisk)ing real.”
An electrical engineer based between New Delhi and Dubai, he started trading in 2017 and resigned in 2018 to start trading cryptocurrencies full-time. Together with a business partner, he built a custom algorithm and built an investment of a few thousand dollars into an amount many times greater, although he would not reveal the value of his asset when he lost access to it.
It is not clear what will happen to the funds of private investors like Sorout, who are locked into the FTX ecosystem. His requests to withdraw the money were not honored last week and now he can’t even log into the exchange, he said Monday.
Sorout didn’t intend to keep all his investments on a single platform, he said, but the tools FTX built for traders like himself were very effective and his algorithm worked well there. He also trusted Bankman-Fried in part because of his high profile.
“The problem was the founder, who donates eight figures in presidential campaigns, he meets the top bureaucrats, he sponsors chess tournaments, he sponsors stadiums,” Sorout said. “You don’t really expect such a big company, especially not the CEO of that company, to scam its customers, do you?”