Cryptocurrencies: FTX vs. Enron and Madoff
The collapse of FTX shook the volatile cryptocurrency market, which lost billions in value at the time, falling below a valuation of $1 trillion.
On November 11, 2022, FTX’s CEO resigned and the company filed for bankruptcy.
The entire collapse, in which FTX went from being worth an estimated $32 billion to bankruptcy, took place over a 10-day period.
According to Zircon Global Technologies, the collapse of FTX has had a broad impact on the cryptocurrency markets, and comparisons have been made to the Enron scandal and the Madoff investment scandal.
The FTX collapse has been described by U.S. prosecutors as «one of the largest financial frauds in U.S. history.»
More recently, the SEC has sued Coinbase alleging that it operates an unregistered stock exchange. The impact of this case is still unknown.
FTX
The cryptocurrency sector is characterized by a high level of volatility, and the plummeting prices of popular cryptocurrencies such as Bitcoin and Ethereum have cast doubt on the future of cryptocurrency-focused companies such as ours.
This trend was further impacted by the recent controversy and failure of FTX, a cryptocurrency exchange that collapsed after its CEO was charged with fraud and misappropriation of corporate funds.
Since then, other cryptocurrency companies have filed for bankruptcy, and most recently, in March 2023, two major U.S. cryptocurrency banks went under, HIVE Digital Technologies refers.
The result so far has been a decline in cryptocurrency markets and public perception of the sector.
In addition, in the wake of the FTX controversy, regulators began reviewing cryptocurrency-focused companies and their operations with increased scrutiny, and have initiated enforcement actions to restrict or cease such activities.
To the extent that cryptocurrency exchanges or other trading venues are implicated in fraud or experience security breaches or other operational problems, this could result in lower cryptocurrency prices.
Cryptocurrency market prices depend, directly or indirectly, on prices set on exchanges and other trading venues, which are new and, in most cases, largely unregulated compared to established, regulated exchanges for securities, derivatives and other currencies.
China
Prior to banning cryptocurrencies on a national scale, China was the world’s largest producer of cryptocurrencies and accounted for the vast majority of the world’s cryptocurrency mining power.
China has outlawed cryptocurrency transactions for Chinese citizens in mainland China, and additional restrictions may be imposed.
In May 2021, China also banned financial institutions and payment companies from issuing cryptocurrency-related financial products and providing cryptocurrency savings, trust or pledging services in China.
Then, in September 2021, China’s regulators instituted a blanket ban on all cryptocurrency transactions and mining, including overseas cryptocurrency exchange services taking place in China, making all cryptocurrency-related activities illegal in China.
In addition, China has banned cryptocurrency mining on a national scale due to the industry’s intense electrical power demands and its negative environmental impacts (both in terms of the waste produced by the mining of rare earth metals used to make miners and the production of electrical power used in cryptocurrency mining).
As of April 11, 2023, the 118 largest bitcoin wallets, out of a total of more than 40 million wallets, held more than 15% of the bitcoins in circulation.
In addition, it is possible that other persons or entities control multiple wallets that collectively hold a significant amount of bitcoins, even if individually they only hold a small amount, and it is possible that some of these wallets are controlled by the same person or entity.
