The Collapse of FTX

When investors begin to believe in an asset, its value increases. Some investors seek analysis, a few performances, and others peer approval before they begin to truly believe. But building belief without a foundation will lead to a collapse. So, it’s no surprise that some investors have got the short end of the stick. What is surprising is that the victims are not just retail investors, even marquee hedge funds are caught in this mess.

How did FTX go from being valued at $ 32 Billion to being valued at nothing in a matter of weeks? This is not the first time a liquidity issue has escalated into a solvency issue in the crypto universe. Let’s not forget about Luna in May this year. The FTX crash was slowly building up behind the scenes. The last straw on the camel’s back was Binance backing out of funding FTX. But, inaccurate records, limited oversight, failure of corporate governance, and related party transactions contributed to the collapse.

The FTX saga will continue to unfold. In the meantime, investors can take something away: trouble brews whenever there is no track record, too much belief, and too little regulation.

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