Next Crypto Exchange to Go Bankrupt Odds

The cryptocurrency world has taken a beating in 2022. A public fearful of an impending recession pulled much of their money out of the market causing the market to shrink by about 66%. This has caused stagnation in the markets and has led to what some refer to as a “crypto winter”.

But that is not the only problem in the world of crypto. One exchange after another is declaring bankruptcy. Most are claiming “illiquidity” but at the end of the day it boils down to mismanagement of customer funds. A true exchange should never gamble with your money. They should be there to facilitate trades and make their profit on booking trades or selling premium trading products.

The problem lays with the fact that the cryptocurrency market is largely unregulated. This has allowed snakes-in-the-grass like Alex Mashinsky and Sam Bankman-Fried (SBF) to take advantage of what traditional financiers refer to as “the wild west” of investing.

Mashinsky ran a company called “Celsius”. It sold itself as a place to store your crypto funds and earn interest while doing so. They claimed they would lend your crypto out at high interest rates and give most of that return to you. They also allowed people to borrow against their crypto holdings so that they could spend money while keeping their crypto. In actuality, Celsius was a Ponzi scheme where Mashinsky took risky bets with other people’s crypto and got in way over his head. When the market tanked his scheme was exposed and he was forced to file for bankruptcy and step down as CEO. Around a half a million people lost crypto equaling billions of dollars in this scam.

Bankman-Fried

If you thought Celsius was a big debacle you ain’t seen nothing yet. Last month, one of the largest crypto exchanges on the planet also filed for bankruptcy. FTX was started by Sam Bankman-Fried just three years ago. He and his company popped up like a weed. They quickly took on billions of dollars in deposits. They were able to hire celebrities to peddle their company and even struck a deal with MLB baseball to where all umpires were wearing an FTX patch last season.

As it turns out, the entire company was using other people’s crypto to bet on the market. SBF created a scheme in which his company took out loans against its own token called FTT. When the public became aware that most of FTX’s empire was built on borrowing against its own token, one which they could mint unlimited amounts, they naturally rushed to withdrawal their funds. This classic “run on the bank” scenario caused the house of cards to fall.

The unraveling of the crypto market is not because crypto is inherently a bad product, doomed to fail. It’s because people are using it in ways that is was not intended. Cryptocurrency was designed to be de-fi. But, people are placing their crypto into third party exchanges and crypto banks. Crypto was invented to avoid centralized conglomerate control but people do what they know best. Hundreds of years of financial management behavior cannot be un-learned overnight I suppose.

— Odds by BetOnline.ag

The collapse of Scam Bankman-Fraud’s (SBF) exchange has led many experts to surmise that the collapse of other exchanges will also occur as a result. The poison pill, as it were, is that other exchanges were heavily tied into the operations at FTX. One of such exchange is called Gemini and is run by The Winklevoss twins of Facebook fame. They reportedly owe their customers $900M which was tied up in FTX. They may be a solid pick at +550

Least likely to fail is Coinbase. The company is located in the continental United States and has had the most oversight by government entities as far as crypto exchanges are concerned. Only time will tell which forms end up folding in the wake of the FTX debacle. Many lessons have been learned here but one thing is for sure: there will always be another scammer around the corner ready to separate the sucker from his treasure.