‘Gaslit’: Australian crypto traders, exchanges reel after FTX collapse

Three weeks ago, on November 2, a single article from a US trade publication set off one of the largest crypto exchange collapses since the notorious fall of Mt Gox in 2014. FTX and its founder Sam Bankman-Fried – revered by traders, investors, and politicians alike – went from being worth nearly $50 billion to $0 in a matter of days.

The extraordinary collapse, which has many months to play out, has left a trail of destruction in its wake and has affected thousands of Australian customers who are owed millions of dollars by the failed exchange’s local operations.

FTX and its founder Sam Bankman-Fried – revered by traders, investors, and politicians alike – went from being worth nearly $50 billion to $0 in a matter of days.Credit:

One of these customers is Drew*, a consultant who once visited FTX’s Hong Kong offices and admits they were entranced by Bankman-Fried’s supposed entrepreneurial brilliance.

“You hear about these entrepreneurs who have this reality distortion field effect when you’re around them, and Sam’s definitely one of those people,” they said. “He was sleeping in the office, there was this whole vibe that, in hindsight, was kind of cult-y but at the time seemed so amazing.”

Drew says FTX employees were encouraged to indiscriminately order UberEats to their office on the company dime, so much so that they recall wading through a “sea” of UberEats bags upon entering the building.

Drew stands to lose upwards of $100,000 due to FTX’s collapse, along with half of their partner’s life savings. They say they feel “gaslit” by Bankman-Fried, and that the collapse was “one of the biggest shocks of my life”.

“I felt like I knew these guys. I knew that Sam was a great trader, and trusted they would be doing their basic due diligence and actually backing funds one-to-one. So, when he was gaslighting everyone on Twitter for the whole week leading up to the bankruptcy and saying everything was fine – because I know him, I trusted him,” they said.

“But now looking back, I don’t think it was just incompetency, I really do genuinely believe that he was a scam artist.”

The contagion from FTX’s collapse this month has spread swiftly and deeply. Major institutional lender Genesis suspended operations in an effort to prevent bankruptcy, and trading platform BlockFi has also paused customer withdrawals. Both companies had exposure to FTX and its hedge fund, Alameda Research.

Australian companies have not been exempt either. Crypto investment firm Apollo Capital said it had 1.5 per cent of its flagship fund in FTX’s FTT token, which has plunged over 90 per cent in value, and Telstra Ventures – which is backed by the telecommunications giant – was an investor in FTX’s $US420 million ($620 million) Series B.

But it appears users of a mid-sized Brisbane-based cryptocurrency exchange, Digital Surge, may be some of the unluckiest indirect victims of FTX’s collapse, with the company suspending deposits and withdrawals this week.

“Digital Surge is exposed to FTX and we are currently assessing the situation. Our current priority is to protect and support Digital Surge users and keep them informed,” chief executive Dan Rutter said in a statement.

“We are shocked by the news from FTX and Alameda and its significant impact on the cryptocurrency sector.”

In an explainer on its website, Digital Surge said the business had held “a portion” of its assets – Australian dollars and crypto – on FTX to facilitate trades. The company said it was “considering all available options” to fix its liquidity issues.

‘Everyone is out there saying that “your funds are safe”, but FTX said that hours before filing for bankruptcy. I can’t take anything these exchanges say as fact.’

FTX creditor Kai*

In years gone by, one such option would have been to raise capital, shaking the tin around various crypto-friendly venture capital firms who had, historically, jumped at the opportunity to take a bet on the “next big thing” in tech. But a weakening global economy has meant venture capitalists have become increasingly bearish on the industry, a position that has only worsened post-collapse.

Just five months ago, major Australian exchange Swyftx and share trading platform Superhero announced a surprise merger that valued the two companies at $1.5 billion. Two months later, as markets worsened, Swyftx was forced to lay off 74 workers – 21 per cent of its staff.

Last week, the company surprised users by revealing it was hunting for a short-term capital injection in an effort to bolster its balance sheet and pursue further expansion. As some Swyftx traders worried on Twitter, co-founder Alex Harper assured customers the funds were not needed for the company’s day-to-day operations.

“We’ve publicly discussed the potential to raise growth equity for expansion into new markets and products on many occasions. Nothing has changed. Any suggestion that the intention would be to use a potential raise to fund day-to-day operations is simply untrue,” Harper said.

Swyftx is a signatory to a recent pledge by 13 local crypto exchanges to provide proof of their assets and audited financials in response to the FTX collapse in a further effort to assuage users’ concerns.

However, for Kai*, another local who is set to lose more than $10,000 in FTX’s sudden bankruptcy, these promises are empty.

“Everyone is out there saying that ‘your funds are safe’, but FTX said that hours before filing for bankruptcy,” they said. “I can’t take anything these exchanges say as fact.”

* Names have been changed.

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