For retail traders who poured their life savings into crypto, the stunning demise of Sam Bankman-Fried’s FTX.com is a worst-case scenario.
After rival Binance walked away from a potential bailout and Bankman-Fried said he’ll shut down Alameda Research, the trading house at the heart of his crumbling empire, the outlook for those with money on FTX is bleak.
FTX halted withdrawals from the platform earlier this week after processing $5 billion worth on Sunday, with some savvy investors realizing early that trouble was brewing. While it appeared some withdrawal activity resumed Thursday, the looming threat of bankruptcy is raising fears that customers could lose access to their accounts.
“I’m done and I think a lot of retail traders are done,” said Christ Keuchkerian, a 36-year-old FTX.com customer in Quebec who works in IT and hadn’t been able to withdraw his funds as of Thursday. “I don't think at this point I want to put any more money into this.”
Keuchkerian first started using FTX about a year ago, investing approximately C$4,500 ($3,360) in tokens like Bitcoin and Ether. He considered the platform “too big to fail.” When he heard the Binance deal fell apart, his heart started palpitating.
“If I’ve learned anything, it’s that centralized exchanges are dead,” he said. “The philosophy behind this movement was great, but the execution has been horrible. The people running the exchanges have been horrible.”
With an $8 billion shortfall and no suitors, Bankman-Fried warned of bankruptcy if he’s unable to secure a bailout. For FTX users, the possibility generates comparisons to Celsius Network and Voyager Digital, two crypto platforms that filed for bankruptcy earlier this year.
Customers of Celsius and Voyager have been locked out of their accounts for months and became creditors in the court proceedings, meaning they have to wade through legal paperwork to get any money back and fight with other creditors for their share of the company’s assets.
In those cases, proceedings have been bogged down by thorny legal questions about how crypto should be treated when an exchange goes bust. And there is little legal precedent for how customers fare in a crypto bankruptcy when there simply isn’t enough money to go around.
It’s not just FTX customers who may be hurt by Bankman-Fried’s downfall. The billionaire agreed to bail out Voyager in a $1.4 billion deal in September, as part of his distressed crypto buying spree, but the transaction still hasn’t closed. Voyager declined to comment on the status of the deal on Thursday.
Investors hoping Bankman-Fried would help restore their funds are anxious their money is likely gone. Even FTX US, an US-based entity separate from FTX.com, said trading may be halted in a few days.