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Ruth Kise 23 Aug 2023 ◦ 10 min read

Yet Another Crypto Collapse: When Will the Dominos Stop Falling

Yet Another Crypto Collapse: When Will the Dominos Stop Falling

On November 11, 2022, the third largest cryptocurrency exchange FTX declared itself bankrupt. Over the short period of its existence, FTX has been able to penetrate many areas of the market like a spray and build close relations with many companies and projects that everyone has heard about.

Many of them will find it difficult to get out of the situation, and not go to the bottom due to the FTX black hole, which is gradually increasing and attracting more and more crypto projects (some of them more, some less). Many are already announcing the damage and problems that have arisen, while some are trying to delay recognition as much as possible and stay in the ranks.

Next, we will look at several cases of large affected players and expert forecasts for the future of crypto.


Cryptocurrency company BlockFi (and eight affiliated organizations) has filed for voluntary bankruptcy under Chapter 11 of the relevant US code. This is stated in a message on the company's website. The procedure in this article allows the reorganization of the indebted business.

BlockFi directly linked its problems to the FTX crash. In July, the companies agreed to provide a revolving credit line worth $400 million and an option to buy it for up to $240 million, Reuters reports.

The credit company is in debt to more than 100,000 lenders, the agency said. At the same time, the second largest creditor is FTX. BlockFi owes FTX $275 million, although its largest debt is to Ankura Trust ($729 million), which represents creditors in difficult situations.

BlockFi said it would focus on recovering all liabilities to it from its counterparts, which include FTX and related entities. BlockFi previously stopped the work of its platform, and this pause will be extended for now: until what time, the company did not specify. BlockFi has $256.9 million in cash in its accounts — management hopes that this liquidity will be enough to provide operations during the restructuring process.


Cryptocurrency broker Genesis has begun actively seeking funding following a liquidity crisis caused by the collapse of the FTX cryptocurrency exchange. On November 16, the broker suspended withdrawals on its platform because it could not satisfy the requests of customers who began to sharply withdraw money. Shortly before that, Genesis revealed that $175 million was blocked in its FTX trading account.

"We have no plans to file for bankruptcy any time soon. Our goal is to resolve the current situation by consensus without filing for bankruptcy. Genesis continues to negotiate constructively with creditors, " a company spokesman told Bloomberg. A spokesman for Binance declined to comment.

Genesis is having difficulty raising funding for its credit division, Bloomberg writes, citing knowledgeable sources. According to them, the company warned investors that if it fails, it may have to file for bankruptcy.

According to the agency's interlocutors, in recent years Genesis has been trying to attract at least $1 billion in new capital. The company, in particular, was negotiating with the Binance crypto exchange, but has not yet received additional investments, Bloomberg points out.


A cryptocurrency exchange Gemini Trust, run by twin brothers, one of the world's first crypto-billionaires Tyler and Cameron Winklevoss, has announced a temporary halt to the payments to revenue program customers. The platform made such a decision after its main partner in income payments crypto creditor Genesis Global suspended withdrawals on its platform amid a liquidity crisis caused by the collapse of FTX led by Sam Bankman-Fried, Bloomberg reports citing company statements.

Gemini is working with Genesis so its users can use the funds earned by retail investors as quickly as possible. Genesis is the main partner of the crypto exchange for these payments, according to the data on the Gemini Earn website (investor earnings program). The New York-based company said the delay in payments does not affect any other Gemini products and services.

The crypto exchange is disappointed that the agreement to service the investor earnings program will not be met, but is counting on Genesis and its parent company, Digital Currency Group, to "do everything in their power to fulfill their obligations to customers under the program," the statement said. Genesis suspended the withdrawals due to the effects of the FTX collapse on the crypto industry the company lacked the funds to meet soaring requests to withdraw them.

The crypto firm said it would provide a plan to reshape its lending business after Nov. 20 and had already hired consultants to explore all possible options, including new funding. The rest of the company's service continues to work. Genesis' credit business was affected earlier this year by the collapse of the cryptocurrency hedge fund Three Arrows Capital.

Job Cuts: Kraken

As a result of the fall of the FTX, the general situation of the market has also worsened. Everyone is saving their businesses as best they can. This is how many companies resort to staff reductions.

Kraken, the world's third-largest cryptocurrency exchange, will lay off about 30% of its employees. The company attributed the upcoming cuts to weakening crypto markets after the FTX crash. This was announced in the company's corporate blog by its co-founder and CEO Jesse Powell.

The layoffs were required for the company to be able to "adapt to current market conditions," Powell said. "We have had to grow rapidly, more than tripling our workforce to provide customers with the quality and service they expect from us. This job cut returns the size of our team to what it was only 12 months ago", said the head of one of the largest crypto exchanges in the world.

Powell wrote that the slowdown caused by "macroeconomic and geopolitical factors" led to lower buying demand, lower trading volumes, and a decrease in the number of crypto exchange customers. "I remain extremely optimistic about cryptocurrencies and Kraken," added Kraken CEO. The company said it would offer compensation for 16 weeks of work as severance and extend the working period of affected employees.

During the coronavirus pandemic, the number of people employed in technology has increased sharply, and in recent months it has sharply decreased rising interest rates reduce consumer demand and investor confidence.

Proof-of-Reserves Trend

As a result of all the above, a new trend was born on the market Proof-of-Reserves. A kind of attempt by platforms to protect their users and prove their honesty, it was started by the Binance exchange.

"All crypto exchanges must confirm their reserves [using] the Merkle tree. […] Binance will soon begin confirming reserves. Full transparency", Zhao wrote. He also compiled a list of the most important, in his opinion, requirements for centralized exchanges.

The initiative was supported by KuCoin CEO Johnny Liu. According to him, the company will release the corresponding document "in about a month."

A similar decision was made in OKX, Gate.io, and Huobi.

Just the day after Zhao's statement, a page appeared on the Binance website listing the exchange cryptocurrency reserves.

Crypto.com also published relevant information. It turned out that the SHIB meme token accounts for 20% of the platform's reserves. What are they doing with it?

The estimated cost of crypto assets on Huobi wallets was $3.5 billion. At Bitfinex, this figure exceeded $5 billion, and at Bybit amounted to about $1.9 billion.

Ethereum founder Vitalik Buterin proposed using zk-SNARKs to check data on the reserves of cryptocurrency exchanges. In his opinion, the technology will increase the effectiveness of the Proof-of-Reserve procedure.

Buterin expressed the hope that someday there will be a system that will not allow the exchange to operate customer funds without their consent.

In addition to confirming reserves, there has been a tendency among exchanges to create industry recovery funds to help projects facing a liquidity crisis a kind of a bailout. The trend was led by the same Binance, and soon OKX announced the creation of a similar structure with assets of $100 million.


Many experts agreed that what happened would extend the bear phase of the market and the "bottom" would not be reached soon. For example, the author of the Telegram channel CryptoEssay Stepan Gershuni is convinced that crypto winter "will wash out all people who found themself in the crypt for the wrong reasons."

Ethereum founder Vitalik Buterin believes the FTX collapse could serve as a lesson for the entire cryptocurrency industry. 

"What happened at FTX was of course a huge tragedy. That said, many in the Ethereum community also see the situation as a validation of the things they believed in all along: centralized anything is by default suspect,” Buterin said in a conversation with Bloomberg.

The situation with the crypto exchange and its founder Sam Bankman-Fried also proves that it is better to trust "open and transparent code above individual humans," the creator of Ethereum added.

He admitted the FTX crash caused notable upheaval in the cryptocurrency market. Since the exchange filed for bankruptcy, a variety of organizations have come under attack from the BlockFi crypto landing platform to those that suspended Genesis and Gemini operations, Bloomberg writes. Despite this, blockchain technology, which is at the heart of crypto operations, continues to work "flawlessly," Buterin said.

Bloomberg called it unlikely that FTX customers will return their funds, since the reserves of FTX liquid assets amount to only $900 million with liabilities of ~ $9 billion.

"You should not even count on a partial refund in the near future. The largest exchange Mt.Gox went bankrupt back in 2014 and only this summer began preparations for payments to creditors, " Managing Partner of GMT Legal Andrey Tugarin.

"Our baseline scenario is that most of the forced sales are over, but investors may not be compensated for market risk in the near term," says Sean Farrell, head of digital asset strategy at Fundstrat investment company.

He pointed to continued uncertainty over Digital Currency Group, the parent company of crypto brokerage Genesis. Genesis lenders are looking for options to try to keep the company from going bankrupt.

At the same time, Genesis clients are not wasting time, turning to lawyers to file claims against the crypto platform. Its debt to customers is at least $1.8 billion.

About 94% of respondents in the Bloomberg MLIV Pulse survey believe that further collapses will follow the FTX bankruptcy, as years of available loans give way to a tougher market environment.

Changpeng Zhao warned of upcoming "cascading effects." In his opinion, the current situation in the crypto industry echoes the financial crisis of 2008, and in the coming weeks even more companies may fail.

Coinbase predicted crypto winter until the end of 2023, as the FTX collapse undermined investor confidence and caused a massive deleverage and the departure of large buyers.

Multicoin Capital experts are also convinced that the consequences of the "infection" of the crypto market will manifest themselves in the future. Many players will cease to exist, which will put pressure on liquidity.

However, the management of the venture capital firm expressed confidence in the long-term prospects of cryptocurrency.

"As leverage shrinks, we expect to see green shoots next year," Multicoin Capital predicted.

Most of the experts surveyed by BDC Consulting are confident in a further decrease in bitcoin quotes. On average, respondents expect the price of the first cryptocurrency to stop the fall of $11,479.

A lawyer under the nickname wassielawyer expressed the opinion that SBF should be in prison.

“Do Kwon was reckless. Voyager had poor risk management. Celsius was mismanagement. 3AC was incredibly reckless with investor funds.
Not that we should forgive any of the above but this… this is straight up criminal.” 

The Bottom Line

The full extent of the damage the FTX crash caused to the crypto industry remains unknown. Blockchain projects such as Solana, Aptos, and Sui are also directly related to the exchange - and the list of companies associated with it is replenished with new names literally every day. Since everyone is trying as much as possible to avoid bankruptcies and frosts, perhaps later we will hear about someone else's fall.

Another issue is the methods by which other companies want to protect (and lobby) themselves. It seems that not all cryptocurrency projects are ready to disclose their own reserves. On the other hand, the Proof-of-Reserves procedure will benefit the market and clear it of scammers.

The emergence of crisis support funds, which were initiated by Binance and supported by others, will reveal the possibilities of getting out of a critical state and prepare the platforms for crisis situations.

One thing is clear recovery will not be imminent. But it will definitely happen. Remember the collapse of the Mt.Gox exchange in 2014, after which the market recovered and went through a huge take-off. So there are still a lot of interesting things waiting for us.

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