About FTX
FTX is a Cryptocurrency Exchange founded in 2019, the firm entered a partnership with Binance in its early days but was eventually bought out by Sam Bankman Fried. The exchange is well known amongst cryptocurrency traders for its large volume of financial investments.
Yet, despite the exchange’s reputation and strengths, the exchange’s stability was shaken by several financial setbacks and Binance’s decision to sell all of its FTT which led to the domino effect of a three-day bank run and bankruptcy.
With the impact of FTX’s bankruptcy in the Crypto market, the spill over effects into the futures and forex industry would influence futures such as
- Bitcoin Futures or Micro Bitcoin Futures from CME,
- Bitcoin Perpetual Future Contracts from APEX,
- BAKKT Bitcoin (USD) Cash settled monthly futures from ICE SG.
Therefore, this article will evaluate and explain more about FTX’s bankruptcy and provide information regarding the futures market in cryptocurrency.
How did FTX fail?
FTX exchange’s fall into bankruptcy was a result of several consecutive setbacks.
Initially, the weak financial conditions of Alameda Research (Parent company of FTX) led to doubts about insufficient funds or capital for the firm. During that period, accusations about FTX had also begun to mount which dampened client confidence in the exchange.
Subsequently, upon learning about the financial condition of the parent firm Alameda, Binance’s CEO, Changpeng Zhao decided to sell FTT (Binance occupies a central position in the ownership of FTX’s token, known as FTT), which resulted in an outsized impact on price.
In addition to the selling of FTT, FTX had also agreed previously to sell itself to Binance, however, that deal had since fallen through.
Eventually, with Zhao’s move and the gloomy outlook for the exchange, panicked customers scrambled to withdraw billions of dollars while the exchange filed for bankruptcy, a day later, the exchange was declared bankrupt.
At bankruptcy, the exchange was valued at between US$10 billion to US$50 billion and listed more than 130 affiliated companies around the world.
Effects and Consequences
The immediate effect of the exchange’s bankruptcy is the loss of wealth for many individuals that are no longer able to withdraw funds. To that end, Business Insiders reports that some users are “attempting to use Bahamas-based nonfungible tokens, or NFTs” as a way to get money out while others are “offering bounties to FTX employees in order to change details in their account information that would allow them to withdraw funds.”
Alternatively, CNBC has also picked up on the loophole, the “unusual trading patterns” of NFTS were explained to be “likely an attempt by FTX users to access money… traders have an agreement with the Bahamian users to pay some percentage of the assets”.
Regarding the loss of money and the financial losses incurred by many, Cory Klippstenm CEO of Swan Bitcoin comments that “I care because it’s retail investors who suffer the most and because too many people still wrongly associate bitcoin with the scammy ‘crypto’ space.”.
Regardless, the ripple effect of FTX’s fall reaches more than individual investors, companies that backed FTX are writing down investments, and the prices of bitcoin and other digital currencies have also fallen.
Overall, politicians and regulators are calling for stricter oversight of the unwieldy industry. In a bid to help recuperate losses, FTX has also said that it was moving as many digital assets as can be identified to a new “cold wallet custodian”, which is essentially a way of storing assets offline without allowing remote controls.
Crypto and Bitcoin Perpetual Futures Contract
According to CNN business, the prices of bitcoin and other digital currencies have fallen “more than 20% lower over the past week”, some believe that “bitcoin could fall to $13,000, a decline of nearly 22%” while fears of a sustained “crypto winter” place the Crypto industry in a precarious position in the short term.
Additionally, JPMorgan analysts add that what makes it more “problematic is that the number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking within the crypto ecosystem”.
On one hand, Bitcoin Perpetual Futures Contract is one of the few futures uniquely designed to be more risk-free as it is an agreement to non-optionally buy or sell an asset at an unspecified point in the future. They are also cash-settled which allows them to be less affected by the crisis.
On the other hand, clients that are trading Bitcoin Futures contract will have to reassess the market conditions for the next contracts as the market anticipates bullish bets.
Non-Crypto Alternatives
While FTX’s crypto market and the crypto world is currently volatile, other markets are still available. Clients seeking to trade futures can look forward to iron ore, soybean meal soybean oil, and many other products.
For more information on the contract months refer to the articles for each product, while the product listings are also available here.
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Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG).
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