Why Did FTX Collapse? Ripple CTO David Schwartz Lays Out The Reasons

Cryptocurrency investors have had a rough 2022, what with Bitcoin’s terrible price drop and Luna’s tragic end. The recent crash of FTX, a prominent exchange for trading digital currencies, has unfortunately halted the cryptocurrency market’s rebound during the past six months.

However, why did FTX collapse? A few issues surfaced, but nothing was made clear. Someone has, at last, made some arguments.

Schwartz Spilled 3 Reasons for the fall

In a recent tweet, David Schwartz, CTO of XRP, outlined the three main reasons for the fall of the FTX crypto empire. 

1. First off, he claims that Alameda Research, a trading company connected to FTX, used money from FTX users.

2. Second, the funds that Alameda was meant to use from FTX’s customer deposits were mixed up with the assets used to place dangerous bets. Sam Bankman-Fried, the former CEO of FTX, now asserts that the assets were combined “unknowingly” and denies committing fraud.

3. He concludes by noting that despite the firm’s obligation to deploy risk-managed, almost delta-neutral procedures, Alameda did not manage risks at all.

Schwartz posed the key question, “How can anyone not be shocked at this fraud/incompetence? 

Who were the Torchbearers of the FTX Collapse? 

However, there were business people that saw FTX as a personal brand and backed FTX.

In a recent CNBC interview, O’Leary revealed he frittered away $15 million FTX as the company’s spokesperson. CNBC’s “Squawk Box” hosts questioned the Canadian investor about FTX’s concerns. O’Leary blamed “groupthink” and that none of his business partners had lost money. 

O’Leary promoted FTX online, alleging a link to convicted founder Sam Bankman-Fried. However, his previous stance was that he endorsed FTX because of its compliance processes. Which he denies now. 

FTX investors also sued Tom Brady and Larry David for not doing enough research.

What is Schwartz’s Stance on O’Leary’s comments? 

Schwartz said many crypto crashes are due to bad luck and it seems there is only one man behind it. The bear market is protracted. FTX and Alameda were designed to be delta neutral. However, Incompetence/fraud is a separate issue. Schwartz is “flabbergasted” by O’Leary’s FTX position. He says his latest utterances are “blind ignorance.”

Conclusion

Many individuals agree with Schwartz that, without a framework that bans crypto executives from making hazardous investments with client and investor money, “this will always happen unless it can’t.” Taking millions of dollars is tempting. FTX has taught us this. Most folks won’t learn this lesson. 

The comment, predictably, angered many in the cryptocurrency world, who has since turned on Bankman-Fried.

Many lessons can be drawn from this, but maybe the most significant is to maintain your senses and avoid being fooled by celebrity endorsement; instead, conduct your own research before putting your money where your mouth is.

The silver lining is that someday a secure environment for cryptocurrencies and digital assets will be established, making them as secure as stocks. Don’t give up on cryptocurrency just yet; it might endure.