FTX Collapse of 2022

✍ By Sarthak Jain | 🌍 India | 📅 Thu Oct 23 2025

FTX Collapse of 2022

FTX's 2022 collapse was one of cryptocurrency's most significant events. A leading exchange in early 2022, it fell fast and hard, declaring bankruptcy later that year. This event shook investor confidence in cryptocurrency, as it was still a relatively new mode of exchange and not widely adopted at the time. But before we move further, we need to understand the reason for the advent of cryptocurrency as a new way of transactions. After the Global Financial Crisis of 2008, public sentiment of big banks was negative due to their fraudulent practices and there was a need for a decentralized and secure system. With the advancements in blockchain technology, a new form of digital currency called cryptocurrency was introduced in 2009. Cryptocurrency was seen as the future of money by many and soon new coins, such as Ethereum, started to pop up. With the introduction of new coins, exchanges were started for easier transactions. And this brings us to Sam Bankman Fried (SBF), a Jane Street quant trader, who started his own crypto exchange, FTX. He also started a hedge fund called Alameda Research, whose financial instability played a key role in FTX's collapse. In 2019, Binance, another crypto exchange, invested in FTX. However, their relationship later soured, turning into competition. Later, Binance sold its **equity stake in FTX** in **July 2021**, receiving a mix of **FTT tokens (~$580M worth) and cash**. These tokens were basically utility token used for operations in the exchange. Following the deal, Binance had approximately 23 million tokens. FTX was a hit among its customers because of its innovative ****features like advanced trading options, tokenized stocks, and a wide range of crypto derivatives. The company had high-profile endorsements and partnerships, including sponsorships of major sports teams and events. In 2022, the company was valued at 32 billion dollars. However, Alameda research, the sister hedge fund was not performing well. In the beginning, it showed strong profits by doing quantitative trading of crypto currencies. But as 2022 progressed, the company started to face losses. It made risky trades and lost money. However, the underlying issues were more severe. Alameda Research had taken loans from lenders, keeping FTT tokens as collateral. Seeing the liquidity crunch in Alameda, SBF started to transfer the customer funds kept with FTX to it. But Alameda lost these funds as well. In early November, Binance announced it would sell its reserve of FTT tokens. The sale of the tokens, combined with their low trading volume, caused their value to plummet, spelling disaster for FTX. The collaterals value also dropped as they comprised of these tokens. Following the news of the sell off, customers rushed to withdraw their money from FTX. However, the exchange had no money as it had transferred those to Alameda. Even the lenders of Alameda Research were not able to get back their money since the value of collateral had dropped way below the amount of loan. On 11 November, FTX and Alameda Research filed for bankruptcy. Sources said that FTX owed over 8 billion dollars. Cryptocurrencies experienced swings and declines in value as news of FTX's collapse first emerged in early November. The collapse of FTX and Alameda Research sent shock waves through the cryptocurrency industry, raising serious concerns about transparency, regulatory oversight, and the risks associated with centralized exchanges. Investors lost billions, and the event triggered increased scrutiny from regulators worldwide, accelerating discussions on stricter crypto regulations. While the long-term future of cryptocurrency remains uncertain, the FTX crash serves as a stark reminder of the dangers of unchecked financial practices, even in the rapidly evolving world of digital finance.