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Cryptocurrency exchange FTX files for Chapter 11 bankruptcy

AILSA CHANG, HOST:

It is a stunning collapse. Today one of the largest platforms for trading cryptocurrency filed for bankruptcy. It's called FTX, a company that earlier this year was paying for commercials like this one, which aired during the Super Bowl. It shows a crypto booster trying to win over a skeptical Larry David.

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UNIDENTIFIED ACTOR: (As character) Like I was saying, it's FTX. It's a safe and easy way to get into crypto.

LARRY DAVID: I don't think so. And I'm never wrong about this stuff - never.

CHANG: What was meant as a funny joke then seems quite prescient today. NPR's David Gura joins us now with more. Hey, David.

DAVID GURA, BYLINE: Hey, Ailsa.

CHANG: OK. So what exactly happened with FTX today?

GURA: Well, on Friday, before the markets opened, FTX announced on Twitter it filed for bankruptcy. And the numbers in this filing are staggering. First of all, it's not just FTX. It's FTX plus more than 130 affiliated companies. And we've learned that their combined liabilities are between 10 and $50 billion.

CHANG: Oh, my God.

GURA: That's what they owe to their creditors.

CHANG: Yeah.

GURA: And there are more than 100,000 of them, a group that includes individual investors. And critically, the company also announced its founder, Sam Bankman-Fried, who is barely 30 years old, by the way - Bankman-Fried is no longer FTX's CEO. It has a new leader, John Ray, someone who has a lot of experience cleaning up big messes like this one, Ailsa. He was brought in after Enron collapsed.

CHANG: Wow. The Enron cleanup guy is now taking over.

GURA: Yeah. This implosion was very fast. I'm going to walk you through what happened here.

CHANG: OK.

GURA: One of Sam Bankman-Fried rivals, the head of another crypto exchange called Binance, raised some questions about FTX's finances. This was just a few days ago. He announced plans to withdraw a lot of assets from FTX. That spooked FTX's customers so badly that the company faced a liquidity crunch and froze withdrawals. And here's where things took a really dramatic turn. The head of Binance - once again, Sam Bankman-Fried's rival - offers FTX a life raft, says he'll buy the company then, only a few hours later, walks away from that deal. And at that point, Ailsa, the writing was really on the wall.

CHANG: Yeah. Can you just tell us more about Sam Bankman-Fried? This is the 30-year-old who was at the center of all of this.

GURA: Yeah. Aside from being very young, he was, until very recently, a multibillionaire, known for almost always wearing shorts and T-shirts and running shoes. The New York Times called him studiously disheveled but also a crypto emperor. Here he is at a conference recalling how he got into this business.

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SAM BANKMAN-FRIED: It sort of looked like, oh, wow, maybe there are actually ridiculously good trades to do here. And I jumped in, and I think it was - I spent, like, a year trading before I could really tell you what a Bitcoin was.

GURA: It's self-effacing, but it didn't take long until he was a celebrity - first within crypto, then beyond crypto, palling around with Tom Brady, signing endorsement deals. The NBA arena in Miami is named after FTX. Bankman-Fried recently shared the stage with former President Clinton and former President - Prime Minister Tony Blair, and he was one of the biggest donors to Democratic candidates.

CHANG: Wow, what a fall. Well, where does all of this ultimately leave investors in FTX and its customers?

GURA: Yeah. No one is feeling very optimistic, and this isn't going to get resolved quickly. This week we've seen at least one prominent venture capital firm, which invested more than $100 million in this company, throw in the towel. Sequoia rode down its investment to zero, meaning the firm regards it as worthless. But it wasn't just venture capital backing FTX. A pension plan for teachers in Canada invested 95 million in U.S. dollars. And there are lots of retail investors, lots of people who have deposits with FTX who don't know what's going to happen to those assets. Lee Reiners is the head of the Duke Financial Economics Center.

LEE REINERS: Crypto's problem is that there's no lender last resort to step in and provide emergency liquidity to prop up the system, right? The Federal Reserve is not going to just step in here.

GURA: There's no backstop. And, Ailsa, on top of that, FTX's U.S. platform says it may halt trading in a few days.

CHANG: So, David, what do you think this collapse means for, like, the wider crypto universe?

GURA: Yeah. Crypto was not in good shape before this happened. Bitcoin is down about 75% from a year ago, when it hit its all-time high. We've been in this crypto winter, as investors call it, a prolonged downturn. And this is making things worse. Right now there is a sense of despair in the crypto world and a sense that this collapse may be what ultimately gets Washington to step in. There's been a lot of talk about the need for regulation and what it might look like. This could open the door to that, Ailsa. We know that key committees, including the Senate Banking Committee, is monitoring this closely, and so is the White House.

CHANG: That is NPR's David Gura. Thank you so much, David.

GURA: Thank you. Transcript provided by NPR, Copyright NPR.

Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.