FTX
In November 2022 one of the world's biggest crypto exchanges collapsed within a few days. Customers' money hadn't been kept separately, and withdrawals were stopped.
FTX was one of the best known crypto exchanges, with stadium advertising, famous faces and big investors behind it. In early November 2022 confidence collapsed. Many customers wanted to withdraw their money at the same time, and the exchange couldn't pay. After a few days it filed for bankruptcy.
The reason wasn't a fall in prices. The exchange had been using customers' money. It wasn't held separately. A large part had flowed to an affiliated trading firm. When that came out, about eight billion dollars were missing.
For customers this was exactly the situation from the lesson Not your keys, not your coins. They didn't own any coins. They only had a claim against a company. In the bankruptcy they became creditors among many. Their claims were valued in dollars as of November 2022, when Bitcoin stood at around 17,000 dollars. So they missed out on the later rise, even when money flowed back years later.
The lesson is uncomfortable and simple. It didn't help that the platform was big, that well known investors were involved or that it advertised everywhere. All that counted was who held the keys to the coins.
What happened resembles a classic bank run. As soon as doubts arise about whether enough money is there, it's sensible for each individual to withdraw immediately. That's exactly what makes the gap visible. Unlike a regulated bank, though, there was no deposit insurance and no central bank to help out in an emergency.
The decisive design flaw was that customers' assets weren't separated from the company's. For regulated securities firms this separation is mandatory, and it gives customers the right to claim back their property in a bankruptcy. Without it, all that's left is a claim for repayment, and in a bankruptcy that becomes an ordinary claim.
The case sped up regulation, in Europe above all the MiCA regulation with rules for authorisation and custody. For you the practical conclusion stays the same: only leave as much on a platform as you could afford to lose, and hold larger amounts yourself.
Summary
- Customer funds without insolvency-proof separation are a claim, not ownership.
- Size, advertising, and prominent investors aren't a safety feature.
- Only hold as much on a platform as you could afford to lose.
Did you get it?
Why did FTX collapse?
Customers' money wasn't kept separately. When many wanted to withdraw at once, the gap became visible.
What legal standing did customers have?
They only had a claim for repayment and became ordinary creditors in the bankruptcy.
What practical consequence follows from that?
Only hold bearable amounts on platforms, and self-custody larger holdings.
Your task
How much of your money sits on a platform where you do not hold the keys yourself, and what would be left for you if it went insolvent? In the terms and conditions of a provider of your choice, find the passage that says whether customer assets are held separately from the company's own assets, and write it down in one sentence.
Sources and further reading
- Bankruptcy filings from the proceedings before the relevant US court starting November 2022, and contemporary reporting.
- SEC complaint against FTX founder Sam Bankman-Fried. View source ↗
- US Commodity Futures Trading Commission, press release 8638-22 of December 13, 2022: complaint over commingling of FTX customer assets with Alameda and a loss of over $8 billion in customer deposits. Retrieved October 9, 2026. View source ↗
- US Department of Justice (Southern District of New York), release on the 25-year sentence of Sam Bankman-Fried: billions of dollars in customer deposits channeled from FTX to Alameda. Retrieved October 9, 2026. View source ↗
Related
- If your broker goes bankruptStage 2
- Not your keys, not your coinsStage 2
- Crypto exchange vs. brokerStage 2