The FTX Collapse Explained

In November 2022, FTX — one of the world's largest crypto exchanges — collapsed in a matter of days. Billions in customer funds went missing, its founder was later convicted of fraud, and confidence across the whole industry was shaken. Here is what happened, in plain English.

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The 20-second version

FTX, led by Sam Bankman-Fried, secretly funnelled customer deposits to its sister trading firm Alameda Research. When confidence cracked in November 2022, customers rushed to withdraw, the missing money was exposed, and FTX filed for bankruptcy. Bankman-Fried was convicted of fraud in 2023.

What was FTX?

Founded in 2019 by Sam Bankman-Fried (often shortened to 'SBF'), FTX grew rapidly into one of the largest crypto exchanges in the world. It ran slick marketing, sports sponsorships and celebrity endorsements, and was widely seen as one of the more 'respectable' names in crypto.

Alongside FTX, Bankman-Fried also ran Alameda Research, a crypto trading firm. The two companies were supposed to be separate. The hidden link between them was at the heart of what went wrong.

How it unravelled

In early November 2022, a report revealed that much of Alameda's balance sheet was made up of FTT — a token FTX had created itself. That raised an obvious question: how solid were these companies really?

A rival exchange announced it would sell its FTT holdings. Confidence evaporated, and customers rushed to withdraw their money — a classic bank run. FTX could not meet the demand, because the customer deposits weren't all there.

FTX had lent customer deposits to Alameda, which used them for risky trading and investments.
On 11 November 2022, FTX and Alameda filed for bankruptcy.
Investigators later estimated roughly $8 billion of customer money was missing at the time of collapse.

The fallout

The collapse triggered a wave of failures across firms exposed to FTX, and deepened the crypto bear market. In November 2023, Sam Bankman-Fried was found guilty on multiple counts of fraud and conspiracy, and in March 2024 he was sentenced to 25 years in prison.

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A polished brand is not a guarantee

FTX looked professional, well-funded and trustworthy right up until it failed. Reputation, celebrity endorsements and slick apps tell you nothing about whether customer funds are actually safe. Treat any exchange as a place to trade, not a place to store long-term savings.

The lessons that stuck

FTX echoed the earlier Mt. Gox collapse: customer funds held by a third party can vanish. It accelerated demand for proof-of-reserves (exchanges publicly demonstrating they hold customer assets) and reinforced the case for self-custody.

The simplest takeaway is the oldest one in crypto: if you don't hold the keys, you are trusting someone else with your money. For larger holdings, moving funds off-exchange into a wallet you control removes that single point of failure. Learn how to avoid crypto scams too — failures and frauds often share the same warning signs.

Key takeaways

FTX was a top exchange that collapsed in days in November 2022.
It secretly lent customer deposits to its sister firm Alameda Research.
Around $8 billion of customer money was missing; SBF was convicted of fraud.
A polished, trusted brand is no guarantee your funds are safe.

Frequently asked questions

Will FTX customers get their money back?

A bankruptcy process has been working to recover and return funds, and recoveries have been substantial — but it has been slow, partial and based on asset values from the time of collapse rather than later highs.

What happened to Sam Bankman-Fried?

He was convicted in November 2023 on multiple counts of fraud and conspiracy related to misusing customer funds, and sentenced to 25 years in prison in March 2024.

How can I avoid being caught in something like FTX?

Don't store long-term holdings on any exchange. Use exchanges to buy and sell, then move significant amounts into a wallet where you control the keys.

The Latest Crypto Team

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