The impact of the FTX crash is not just limited to the investors who invested in these companies. It is also set to affect the crypto industry, the regulations industry, the philanthropist entities, and a shift of money into government-backed treasury bills. This is also set to trigger more crashes in share prices of other related companies (just like it happens in a recession) and reduce trust in 'experts'.
What shook the crypto universe last week? Sam Bankman-Fried is the owner of 2 closely related, now bankrupt crypto companies: FTX and Alameda Research. While FTX is a crypto exchange (a platform that allows people to trade in cryptos, just like NSE or NYSE allows you to trade in equity stocks), Alameda Research is a crypto hedge fund (which invests public money in cryptos). FTX and Alameda, along with more than 130 corporate companies, have just filed for bankruptcy.
Why is this scary? In simple words, a crypto exchange like FTX has a lot of customer funds because people trade in cryptos, and pay real dollars to receive tradeable bitcoins. As per rules, FTX is not supposed to use this money.
Now, how did the money disapper?
So, how does it affect the world?
1. Ripple effect in the crypto world: Investors were anyway wary of investing in crypto and this disaster has justified people's mistrust in it. Bitcoin was already down by 70% over the year and went down by another 12% in 5 days even after 10 lakh people were barred from withdrawing funds.
2. Faster crypto regulations are bound to come in: As the FTX collapsed, state and federal agencies like the US Department of Justice, the US Securities and Exchange Commission (SEC), and the Bahamas’ Financial Crimes Investigation Branch have launched or expanded investigations into FTX.
There has been ambiguity in crypto regulations so far and this crash is bound to fasten the process. Therefore, a number of criminal and civil actions against the exchange and its executives are bound to come in.
3. Less trust: The crypto world has been stunned by the FTX crash as a lot of people who invested their savings have lost it. This also marks a loss of trust in experts and celeb endorsements because even sharks like Kevin Oleary had recommended FTX just a few weeks ago.
Last month, Shark Tank's Kevin O’Leary said "if there's ever a place I could be that I'm not gonna get in trouble, it's gonna be at FTX." pic.twitter.com/zSxr647Vqk— Watcher.Guru (@WatcherGuru) November 11, 2022
FTX also hired YouTube influencers and high profile celebs to push people to invest in FTX. Gisele Bundchen, Tom Brady and Seinfeld creator Larry David and popular YouTube channel Nas Daily had all promoted him a year ago. In fact, Bankman-Fried was also on the cover of Fortune and Forbes.
So, when real-life experiences don't match predictions of these so-called experts, people are bound to be shocked and lose trust.
4. A withdrawal of funds from other entities: Not just FTX, but as data about related companies goes public, investors are bound to withdraw funds from other companies; thus, reducing their share prices.
5. Money will most likely shift to treasury bills: Since people who managed to save their money from the crypto crash need better options to invest in, money will now move to the government's treasury bills because they will now seem to be a better and safer option.
6. Suspicion over actual philanthropists and political parties: Though FTX started with the concept of 'earn to give' and Nas Daily also called Bankman-Fried one of the most generous persons on the planet, FTX's crash means that money that was bound to be used for good purposes won't be available anymore.
Also, as news of FTX donating large sums of money to Biden's political campaign came across, the general consensus is that people are now suspicious and will pause before investing even in genuine charities and organisations that operate to make a difference.
The DOJ charged me with 186 years in jail because my users (not me) uploaded movies to my website, against our terms of service and despite of us having a perfect takedown record for all piracy links that were ever reported to us. How much jail time is Sam Bankman-Fried facing?— Kim Dotcom (@KimDotcom) November 13, 2022