Monday Market Minute | Nov 14, 2022

FTX collapses in the largest crypto fraud in history — billions in customer funds missing

What Moved

FTX, once valued at $32 billion and considered the most reputable centralized crypto exchange, filed for bankruptcy on November 11 after revelations that customer deposits had been secretly funneled to its affiliated trading firm, Alameda Research. Founder Sam Bankman-Fried resigned, and new CEO John Ray III — who had overseen the Enron liquidation — described the situation as the worst corporate governance failure he had ever seen. Bitcoin fell below US$16,000, and the total crypto market cap plunged to its lowest level since early 2021.

Why It Matters

The FTX collapse was the capstone of crypto's 2022 annus horribilis — following Terra/Luna, Three Arrows, Celsius, and Voyager. For Canadian investors, the implications were direct: FTX had operated in Canada through regulatory-approved channels, and Canadian pension fund OTPP had invested $95 million in the company just one year earlier. The failure exposed the inadequacy of existing due diligence frameworks for digital asset platforms and raised fundamental questions about the asset class's institutional readiness.

Signal to Watch

Contagion to BlockFi (which filed for bankruptcy days later) and the broader crypto lending ecosystem — the interconnectedness of the failures pointed to systemic, not isolated, problems.

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