Why Did FTX Collapse and What Does it Mean For Crypto?
Summary from the AllSides News Team
A multi-billion dollar bank run on the world’s third-largest cryptocurrency exchange platform, FTX, is leading many to speculate the future of digital currencies and issue warnings of risky investments in unproven, loosely regulated markets.
Key Quotes: The Wall Street Journal Editorial Board placed partial blame for the bubble pop on the Federal Reserve, which they state “encouraged excessive risk-taking by keeping real interest rates below zero for so long,” determining, “maybe the best way to rein in excessive risk-taking is for the Fed to continue rolling back the monetary conditions that have encouraged it.” A writer for the Washington Post agreed, citing an abundance of capital in the market leading investors to take on riskier bets, stating, “for years now, the folly of such investment strategies translated, essentially, into free money for entrepreneurs.”
For Context: FTX filed Chapter 11 bankruptcy on Friday and CEO Sam Bankman-Fried resigned, according to a press release posted on Twitter. The bank run is believed to have been triggered by a CoinDesk report that FTX was using customer assets for risky investments in Alameda Research, a company also run by Bankman-Fried. The report led to Binance, a rival crypto exchange platform, selling $500 million worth of FTT, FTX’s cryptocoin. This caused panic in the market and resulted in the collapse of FTX, which earlier this year aired a commercial during the Super Bowl encouraging viewers not to miss out on crypto.
How the Media Covered It: Coverage of FTX’s fall has dominated financial outlets this week.
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