In today's digital age, the collapse of digital currency exchanges has attracted much attention. What exactly caused the failure of these platforms? Let's explore in depth and analyze the root causes of the collapse of digital currency exchanges.

The collapse of digital currency exchanges is not an accidental event, but a complex result of multiple factors. First of all, poor supervision is one of the important reasons for the collapse of digital currency exchanges. The lack of clear regulatory policies and supervision by regulatory agencies has put some exchanges in legal risks. For example, when the Mt.Gox exchange collapsed in 2014, due to the long-term lack of supervision, billions of dollars of digital assets disappeared and investors suffered huge losses. This regulatory vacuum gave criminals an opportunity to take advantage of it, exacerbating the instability of digital currency exchanges.

Secondly, technical security risks are also one of the important reasons for the collapse of digital currency exchanges. With the continuous development of hacking technology, digital currency exchanges face continuous threats from hackers. In 2019, the New Zealand Cryptopia exchange declared bankruptcy due to a hacker attack, millions of dollars of digital assets were stolen, and user funds suffered heavy losses. These security risks expose the weak links in the technical protection of digital currency exchanges and also trigger investors' concerns about the security of the platform.

Finally, market volatility and speculation are also one of the important reasons for the collapse of digital currency exchanges. The digital currency market is highly volatile and the price fluctuates violently. In order to obtain huge profits, some exchanges have participated in speculation and speculation, which has led to market instability. At the end of 2017, the BitConnect exchange was closed for suspected pyramid schemes and fraud, and billions of dollars in market value evaporated in an instant. This kind of speculation and speculation not only harmed the interests of investors, but also undermined the healthy development of the digital currency market.

In summary, there are many reasons for the collapse of digital currency exchanges, including poor supervision, technical safety risks, management team mistakes and market speculation. In order to avoid the collapse of digital currency exchanges again, regulatory authorities should strengthen supervision, exchanges should strengthen technical security protection, management teams should improve their business level, and investors should maintain rational investment to jointly maintain the stability and healthy development of the digital currency market. The collapse of digital currency exchanges has sounded the alarm for us. Only by being alert to risks and investing prudently can we protect our wealth and safeguard the future of the digital currency market.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

A sudden crash has caused a major earthquake in the virtual currency market. On November 11, local time, FTX founder SBF announced on social media that FTX Group has initiated bankruptcy reorganization procedures in the United States. According to US law, such companies that file for bankruptcy can continue to operate while formulating debt repayment plans. At present, the exchange has suspended cryptocurrency withdrawal business. The FTX crisis continues to impact the confidence of the global virtual currency market. After the news of its bankruptcy reorganization was released, virtual currencies suffered another sharp drop. Many investors want to further understand the cause of this crash. Let the editor of the currency circle analyze it for everyone.

 Causes of the collapse of digital currency exchanges

The protagonist of this story, FTX Exchange (), was established by SBF in 2019. The reason for its establishment is simple: SBF was not satisfied with the exchanges on the market, so he decided to establish one himself. Naturally, Alameda became FTX's earliest and most important market maker, providing FTX with a large amount of liquidity. FTX's slogan is "for traders, by traders". With good infrastructure and user experience, FTX has rapidly grown into one of the top five exchanges in the world in three years, competing with established exchanges.

The whole story started with a report published by Coindesk on November 2. The report said that it obtained Alameda's balance sheet and found that there was an "overly close" connection between Alameda and FTX - Alameda held a large amount of FTX's token FTT. Specifically, as of June 30, 2022, Alameda's total assets of $14.6 billion were unlocked FTT, and $2 billion were FTT collateral.

In addition, there are more than $1 billion in SOL (the token of another major crypto asset project invested by Alameda, the representative of the new generation of smart public chains), and only $130 million in cash and cash equivalents. Its liabilities include more than $7.4 billion in loans denominated in US dollars (not currency-based).

Although SBF announced its withdrawal from the management of the Alameda Fund in May this year and stated that it would focus on the development of FTX, the market generally believes that the business connection between Alameda and FTX is still continuing. The previous mainstream view was that FTX would provide Alameda with a higher priority order flow, allowing the latter to trade earlier than other traders to earn higher profits.

But Coindesk's report made people understand that FTX is not only Alameda's data source, but also Alameda's "piggy bank". Alameda has a good investment strategy, but lacks funds, which is why SBF urgently needs an exchange that can absorb a large amount of funds from cryptocurrency traders. This is the fundamental purpose of the establishment of FTX.

Obviously, the entire leveraged cycle transaction depends on whether the price of FTT created out of thin air by FTX can be stabilized at a certain level. Once the price of FTT plummets, the demand for supplementary collateral will cause Alameda to have a liquidity crisis, and FTX itself will also suffer from depositor runs due to the decline in the price of management tokens.

 Impact of the collapse of digital currency exchanges

Once FTX collapses, it will not only affect important holdings of Alameda such as Sol, but also many of Alameda's creditors, including traditional financial institutions such as Blackrock. Some people even believe that once SBF, the "JP Morgan" of the currency circle, goes bankrupt, there may be no one to sell and save the future crisis in the field of crypto assets.

On the day of bankruptcy, FTX was hacked. According to the blockchain analysis platform NANSEN, FTX suffered a mysterious outflow of $662 million. FTX said it was investigating the relevant situation and asked investors to stay away from FTX's website.

On November 12, local time, Reuters quoted two people familiar with the matter as saying that at least $1 billion (equivalent to about 7 billion yuan) of customer funds of FTX, which declared bankruptcy, were missing. People familiar with the matter said that the founder of the exchange, SBF, had previously secretly transferred $10 billion of customer funds from FTX to his personal trading company, Alameda Research. Another source said that the amount of missing funds was between $1 billion and $2 billion.

According to people familiar with the matter, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are investigating whether FTX improperly handled customer funds. In addition, U.S. Treasury Secretary Yellen also said that the collapse of FTX showed the weakness of the industry and that the cryptocurrency market requires "very careful regulation."

The above content is a simple analysis of the reasons for the collapse of digital currency exchanges by the editor of the currency circle. Choosing a cryptocurrency exchange is one of the preliminary steps before investing in the world of cryptocurrency. Therefore, a careful analysis should be conducted before deciding on a specific exchange. Potential investors need to strike a balance between the various factors mentioned above and should not choose an exchange based on a single factor. Investors must seek clarification of issues that arise in the process of investing in cryptocurrencies. Reliable customer support helps users make informed investment decisions. Therefore, cryptocurrency exchanges should have a responsive customer support system. If users frequently ask questions, the platform should be able to answer everyone's questions.

In addition, the mistakes of the management team are also one of the important reasons for the collapse of digital currency exchanges. The lack of effective risk control and business experience of some exchange management teams has led to wrong decisions and poor management. For example, after the sudden death of the founder of the QuadrigaCX exchange, the platform was unable to access his digital currency reserves, resulting in the inability to recover millions of dollars in funds and eventually bankruptcy. This kind of management team's mistakes not only harmed the interests of investors, but also shook the confidence of the digital currency market.