FTX clients will have to wait a long time to get their money back

This week the exchange paused customer withdrawals in its international unit; “If the exchanges are not trustworthy, the entire premise of cryptocurrency does not work.”

Stephen Gibbs decided it was time to withdraw his money from the cryptocurrency exchange this week when he learned of the problems at FTX.

Gibbs, a musician from Thailand, said that he tried to withdraw the money from him on Tuesday. But FTX that day halted crypto and fiat withdrawals from its international unit. As of Thursday, Gibbs said, his transaction was still listed as “solicited.” On Friday, FTX filed for bankruptcy.

“If you can’t trust an exchange like FTX, you can’t trust any exchange,” Gibbs said before filing for bankruptcy. “And then if you can’t trust the exchanges, the whole premise of cryptocurrency doesn’t work.”

FTX established itself incredibly well in the industry, surviving the broad market downturn that other companies couldn’t survive. But its collapse this week has left customers wondering if they’ll ever see their money again.

Customers don’t know if they will get anything or how long it will take to get their money back.

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The Wall Street Journal reported that FTX was hit by a spate of withdrawal requests this week, and the company is struggling to raise money to cover a shortfall of up to $8 billion. FTX lent billions of dollars to finance long-shot bets at its affiliate Alameda Research, using money that customers deposited with FTX.

Crypto losses became commonplace for many people in 2022. Lenders like Voyager Digital and Celsius Network filed for bankruptcy this year, and many of their customers lost hope of getting their money back. Even “algorithmic stablecoins” that, in theory, should hold a fixed value collapsed this year.

While a Celsius representative did not respond to a request for comment, a Voyager spokesperson said US dollar withdrawals are active, but cryptocurrency withdrawals are still on hold until the restructuring process is complete.

When we talk about bankruptcies in the world of cryptocurrencies, we talk about practically unknown territory. According to regulators and legal experts, the cryptocurrency customers on these platforms might not belong to them in the eyes of a bankruptcy court. Instead, they could go into the bankruptcy estate the creditors divvy up.

Even if customers eventually gain access to their crypto, they could suffer huge losses if the market went down while the bankruptcy unfolded.

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Cryptocurrencies have recently expanded into the mainstream, with cryptocurrency lenders and brokers presenting themselves as avenues for regular people to earn money. Some newbies have embraced cryptocurrency trading, using platforms like FTX to try and time the market. Others thought they were taking a safer route by using FTX and other cryptocurrency firms to park their money like a bank deposit but getting a much higher return than any regulated bank would pay. Many in both groups are now in dire straits.

The website for the US arm of FTX said late Thursday that “trading may stop on FTX US in a few days.”

An FTX spokesperson declined to comment. In a tweet Thursday, FTX founder Sam Bankman-Fried said he was sorry, and his number one priority is doing what’s suitable for users.

“Every penny of that, and of the existing warranty, will go directly to the users unless or until we’ve done the right thing for them,” Bankman-Fried said. On Friday, he resigned as CEO of FTX.

Crypto spawned many new traders during the pandemic, many of whom had never even thought about bitcoin until quarantine. The price of bitcoin and other currencies has skyrocketed in the last two years along with the stock market, spawning the idea that cryptocurrencies could only go up.

But actually, we could compare cryptocurrencies to a casino. It lacks the government rules and legal protections built into banks and brokerage houses. In particular, your deposits are not guaranteed by the federal government.

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Mr Gibbs, the musician, used FTX to store his bitcoin. He said that the exchange offered a 6% annual percentage yield on bitcoin deposits.

“In recent years, it has become possible to generate a return with crypto assets, and that is difficult for people to reject,” Gibbs said in an interview.

Mr. Figueroa previously lost money in the collapse of QuadrigaCX, once Canada’s largest cryptocurrency exchange, making the issues at FTX particularly frustrating. Figueroa, who runs a YouTube channel called Kinetic Finance, said he has a year’s salary tied up at FTX.

“It hurts, but I’m a young guy,” said the 27-year-old. “I have time to recover a year’s salary.”

Gianluca Giuffra, a 25-year-old investor from Lima, Peru, used FTX to trade digital assets and chose the exchange because he thought it was a safe bet.

“Sam seems very honest,” he said, “he doesn’t seem like the kind of person who would do crazy things behind users’ backs.”

On Tuesday, Mr Giuffra submitted four withdrawal requests as of 5:24 a.m. m. The first three were approved. The last one, made at 5:56 a.m. m., did not. The experience has left him bummed about the entire industry.

“I guess regulation isn’t so bad after all,” Giuffra said. “Because without them, you were guessing and hoping that the CEO or the person in charge wasn’t playing and gambling with all the money you invested.”