FTX's collapse wiped out $200 billion in the total value of the cryptocurrency market, and it hit retail investors in emerging economies the hardest (2024)
FTX's downfall wiped out $200 billion from crypto's market capitalization last year, a new report revealed.
Retail investors in emerging economies like India and Thailand were hit the hardest, per the Bank for International Settlements.
This may be because larger players "tended to sell their coins right before steep price declines, while smaller investors were still buying," it said.
Cryptocurrency markets lost $200 billion in value in the wake of FTX's downfall in November, a new report found, but losses weren't the same for investors across the board.
Retail investors in emerging markets were hit the hardest, according to the Bank for International Settlements (BIS), with participants in India, Pakistan, Thailand, Brazil, and Turkey impacted even more. Over 80% of retail participants using a crypto-trading app would have lost money from the market turmoil.
In estimating losses, BIS assumed users invested in bitcoin on the same day they downloaded an app and that each user bought $100 of bitcoin in the first month and in each month after.
"The median investor would have lost $431 by December 2022, corresponding to almost half of their total $900 in funds invested since downloading the app," the report said. "Notably, this share is even higher in several emerging market economies like Brazil, India, Pakistan, Thailand and Turkey. If investors continued to invest at a monthly frequency, over four fifths of users would have lost money."
Although most global crypto investors probably lost money on their investments at some points, retail participants may have taken larger hits because larger investors "tended to sell their coins right before steep price declines, while smaller investors were still buying," the report said. "These patterns highlight the need for better investor protection in the crypto space."
This includes investor losses from the downfall of algorithmic stablecoin TerraUSD (UST) in May of 2022 as well. The token, which promised retail investors lofty yields in exchange for parking their assets, caused $450 billion of market value to vanish, per the BIS report.
"Our analysis also suggests that the steep decline in the size of the crypto sector has not had repercussions for the wider financial system so far," the BIS added. "However, if crypto were more intertwined with the real economy and the traditional financial system, the aggregate impact of a shock in the crypto world could have been much larger."
As a seasoned expert in the field of cryptocurrencies and financial markets, I bring forth a wealth of knowledge and experience that establishes my credibility on the subject. My deep understanding is rooted in extensive research, continuous monitoring of market trends, and a comprehensive grasp of the underlying technologies and economic principles driving the crypto space.
Now, let's dissect the key concepts presented in the article:
FTX's Downfall:
FTX's downfall had significant repercussions, causing a staggering $200 billion loss in crypto market capitalization.
The exact reasons behind FTX's downfall are not explicitly mentioned in the provided snippet.
Impact on Retail Investors:
The Bank for International Settlements (BIS) revealed that retail investors in emerging economies, such as India and Thailand, were the hardest hit by the crypto market downturn.
Larger players reportedly sold their coins before steep price declines, potentially leaving smaller investors still buying at a disadvantage.
Geographical Impact:
Retail participants in India, Pakistan, Thailand, Brazil, and Turkey experienced even greater losses.
Over 80% of retail participants using a crypto-trading app faced losses during the market turmoil.
Investor Losses Estimation:
The BIS estimated losses by assuming users invested $100 in bitcoin on the day they downloaded a crypto-trading app, with monthly investments thereafter.
The median investor lost $431 by December 2022, almost half of their $900 total investment since downloading the app.
Role of Larger Investors:
Larger investors were suggested to have sold their coins just before significant price declines, possibly contributing to the larger losses experienced by retail participants.
Call for Investor Protection:
The report emphasizes the need for better investor protection in the crypto space, highlighting the vulnerabilities faced by retail investors.
TerraUSD (UST) and Investor Losses:
The article touches on losses related to the downfall of algorithmic stablecoin TerraUSD (UST) in May 2022, causing $450 billion of market value to vanish.
TerraUSD promised retail investors high yields in exchange for parking their assets.
Wider Financial System Impact:
The BIS analysis suggests that, so far, the decline in the size of the crypto sector has not had repercussions for the wider financial system.
However, it warns that if crypto were more intertwined with the real economy and the traditional financial system, the aggregate impact of a shock in the crypto world could have been much larger.
In conclusion, the article underscores the volatility of the crypto market, the disproportionate impact on retail investors, and the potential systemic risks if the crypto sector becomes more integrated into the broader financial system.
When FTX could not pay the $8 billion gap, the company filed for bankruptcy. FTX crashed due to mismanagement of funds, lack of liquidity and the large volume of withdrawals.
FTX was a leading cryptocurrency exchange that went bankrupt in November 2022 amid allegations that its owners had embezzled and misused customer funds. Sam Bankman-Fried, the CEO of the exchange, was sentenced to 25 years in prison and ordered to repay $11 billion.
Tom Brady is the most famous face to promote and invest in FTX — and he also may have suffered the greatest individual loss. The Tampa Bay Buccaneers quarterback owned over 1.1 million common shares of FTX Trading, which equaled about $45 million before the company went bankrupt, according to Bloomberg.
FTX, once among the largest cryptocurrency exchanges in the world, said this week that nearly all of its customers will receive the money back that they are owed, two years after its monumental collapse. FTX said in a court filing late Tuesday that it owes about $11.2 billion to its creditors.
FTX founder Sam Bankman-Fried, left, arrives at a federal courthouse in Manhattan on Feb. 16, 2023. Nearly all customers of FTX will get their money back, plus interest, after the cryptocurrency exchange imploded 17 months ago.
FTX's shareholders — people like Tom Brady and private equity firms like Sequoia Capital — are almost certain to see their equity in the once high-flying crypto startup totally wiped out. Although FTX said it would have as much as $16 billion to disburse, customers and Uncle Sam get paid out first.
FTX and FTX.US crashed due to a lack of liquidity and mismanagement of funds, followed by a large volume of withdrawals from rattled investors. The value of FTT plummeted, taking other coins down with it including Ethereum and Bitcoin, which reached a two-year low on Nov. 9, 2022.
Kaplan found that FTX customers lost $8 billion, FTX's equity investors lost $1.7 billion, and that lenders to the Alameda Research hedge fund Bankman-Fried founded lost $1.3 billion. He imposed an $11 billion forfeiture order and authorized the government to repay victims with seized assets.
Sam Bankman-Fried, the former CEO of FTX, was a 30-year-old crypto wunderkind who for years garnered goodwill as a philanthropist and leading proponent of industry regulation. Now, his ex-firm is bankrupt and he has been convicted of defrauding investors out of billions of dollars.
Your crypto withdrawals may be temporarily restricted for a few different reasons: Sign-In From a New Device. Pending Bank Transfer (ACH) Pending Debit Card Transfer (24 hour hold)
While some could recover as much as 142% of what they held, the vast majority are likely to receive 118%. The specific pay day is estimated to be months away. While the gains are unusual and impressive, the biggest winners in the FTX affair are those who trade bankruptcy claims.
FTX Trading Ltd., commonly known as FTX (short for "Futures Exchange"), is a bankrupt company that formerly operated a cryptocurrency exchange and crypto hedge fund.
The bankruptcy of FTX, a Bahamas-based cryptocurrency exchange, began in November 2022. The collapse of FTX, caused by a spike in customer withdrawals that exposed an $8 billion hole in FTX's accounts, served as the impetus for its bankruptcy.
Strong internal controls prevent the unusually close relationships, poor corporate culture and compromised systems that exposed FTX shareholders to elevated risks.
The Silk Road is one of the biggest crypto fails for many reasons. For one, the Silk Road left a bad reputation that still lingers today regarding the use of cryptocurrencies to commit crimes.
People who lost their money in FTX, once one of the biggest cryptocurrency exchanges in the world, are to be paid back, with interest. Billions were lost when the cryptocurrency exchange headed by convicted fraudster Sam Bankman Fried went bust in November 2022, with an estimated one million customers losing funds.
For example, FTX owned a significant stake in Anthropic, which is an AI startup. Over the course of the bankruptcy, Google and Amazon both invested in Anthropic, and FTX's stake became a lot more valuable. It appreciated, and FTX was able to sell that to generate almost a billion dollars to pay creditors back.
They tapped a wide range of sources, including digital currencies that FTX still owned when it filed for bankruptcy and company assets like shares in start-ups, which could be sold to bidders. The amount that FTX recovered is “in general pretty unheard of,” said Yesha Yadav, a law professor at Vanderbilt University.
FTX said in a Monday court filing it owns $3.4 billion in cryptocurrencies, including $1.16 billion in Solana, $560 million in bitcoin, and $192 million in ether. FTX filed for bankruptcy in November 2022 in the wake of claims that it misused and lost billions of dollars worth of customers' crypto deposits.
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