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They pulled money out of FTX at last

minute before its bankruptcy: ‘Thank
God I dodged it twice’ Advertisement
Last Updated: Nov. 16, 2022 at 10:54 a.m. ET Advertisement

First Published: Nov. 16, 2022 at 10:41 a.m. ET Advertisement

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By Frances Yue Follow 24 Uncover unique insights on
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Some retail investors became so 'traumatized' by the collapses of several crypto companies of America Institute

earlier this year that they moved their money out of FTX as soon as ominous signs appeared. New York: The List Of The
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As the FTX debacle started to unravel last week, a 26-year-old customer of FTX.US who lived in the
New York City area faced a thorny dilemma. While he was concerned about the situation that was
unfolding, he was hesitant to withdraw his $20,000 worth of holdings from the cryptocurrency
platform because he knew it would cost him money.

The customer had some outstanding bitcoin BTCUSD, +0.40% derivatives contracts on FTX.US and
to withdraw his money the investor had to put in another $400 to cover some short options he had
sold. But as the situation around FTX appeared to worsen, the New York area customer finally made
up his mind. He paid the money and put in a withdrawal request last Thursday evening, and received
his crypto an hour later. 

The next morning, FTX and about 130 related entities, including FTX.US and trading firm Alameda
Research, filed for bankruptcy protection in U.S. federal court.

“Thank God,” the New York-based crypto investor said. “I was lucky. I dodged it twice.” All FTX
customers MarketWatch spoke to for this article requested to remain anonymous, citing fears of
repercussions. The customers did share screenshots of their FTX transfers, which MarketWatch was
able to review.

For the trader MarketWatch spoke with in New York, the FTX collapse was part of a pattern that
had become familiar. Not too long ago, the investor pulled his money out of the Singapore-based
crypto lending platform, Hodlnaut, three weeks before it froze withdrawals in August citing “market
conditions”. Hodlnaut also reportedly held about SGD 18.3 million, or about $13.4 million worth of
crypto, on FTX as of Oct. 28. A representative at Hodlnaut didn’t respond to a request seeking
comment for this article.

Before its collapse, FTX was the third-largest crypto exchange by trading volume. Celebrities like
Tom Brady, Gisele Bundchen, and Steph Curry endorsed the platform. The Miami Heat’s home
basketball arena was named after it. FTX’s co-founder and former chief executive, Sam Bankman-
Fried, graced the cover of Fortune Magazine, which wondered if he was the next Warren Buffett.

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Now, there is little chance that customers who were enticed to use the platform will be able to
recover their assets, analysts said. Based on a balance sheet shared with investors one day before
FTX’s bankruptcy filing, the exchange had almost $9 billion in liabilities and $900 million in liquid
assets, $5.5 billion in “less liquid” assets, and $3.2 billion in “illiquid” assets, according to a
Bloomberg article citing anonymous sources. What’s worse, one day after the bankruptcy filing,
John J. Ray III, FTX’s new chief executive, said in a statement that “unauthorized access to certain
assets has occurred,” while crypto research firm Elliptic said $477 million is suspected to have been
stolen from FTX. Representatives at FTX didn’t respond to a request seeking comment.

Several FTX customers and crypto industry participants described FTX’s collapse as “shocking,” even
though the industry already saw the collapses of several key players this year, such as blockchain
Terra, lender Celsius, and hedge fund Three Arrows Capital. 

“For FTX to go down, it is pretty nuts,” said the New York-based crypto investor who managed to get
his money out at the last minute. “Sam Bankman-Fried really seemed like he was going to be the one
to bring on regulation and make the industry have more legitimacy,” the investor said. 

Nevertheless, many retail investors have become conditioned this year to flee from any crypto
platform that shows any hint of trouble, a dynamic that has hurt confidence in crypto-institutions,
slowed down crypto adoption, and could increase the volatility around digital assets trading in the
days and months ahead, analysts said.

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In the case of FTX, some retail investors had become so “traumatized” by the crypto events that had
taken place this year that they started moving their money out of the platform as soon as the
ominous signs appeared. 

There have been some “recurring themes” in crypto that led to customers’ losses, noted David Tawil,
president and co-founder of digital asset fund ProChain Capital. “I think people that have either
been hit by or have been close to a previous blow up, are figuring, why? Why wait? What’s the
benefit of waiting?” Tawil said. “Once they hear anything, any sort of rumor or any sort of warning,
they run to go ahead and take their money out.”

Last call before the fall

Last week, as Bankman-Fried took to Twitter to say, “FTX is fine. Assets are fine,” a 26-year-old
Colorado-based customer of FTX.US withdrew about $10,000 in U.S. dollars from the exchange. The
next day Binance, a rival exchange, signed a letter of intent to acquire FTX’s non-US assets. But the
Colorado customer, who works for a private equity fund, tried to take out his remaining $1,200 from
FTX.US., regardless. He was unable to retrieve those remaining funds.

A day later, Binance abandoned its deal for FTX, citing due diligence and reports about mishandled
customer funds, and FTX soon filed for bankruptcy. 

“With everything going on, it’s looking less and less likely that the money will ever get to my bank
account,” the Colorado customer said about his $1,200 that remain stuck on FTX.US. 

 “Crypto has made me a bit of a pessimist,” the Colorado-based customer added. Though he didn’t
expect FTX to collapse, “as soon as I saw anything potentially negative about FTX, I thought that’s
more than enough to prompt me to withdraw my funds.”

That pessimism came in part from his previous experience of having about $50,000 stuck on Solana-
based stablecoin protocol Cashio, which in March was hacked, causing a loss of some $52 million.
Though the Colorado investor was able to recover most of his funds weeks later, the experience has
kept his guard up. “I’ve been through this situation of not being able to withdraw money that I have,”
he said. 

The Colorado trader was also lucky enough to avoid a hack in October targeting decentralized
crypto exchange Mango Markets, where he once also had an account. In May, he said he persuaded
his fiancé to take out her $10,000 from Celsius after reading some criticism about the platform on
Twitter. “I said, hey, we already had gone through enough with crypto, I think you should take your
money out,” the investor told her girlfriend. It turned out to be the right choice – four weeks later,
the lender froze all withdrawals and later filed for bankruptcy. 

Read : ‘I just wake up and cry’: Voyager and Celsius bankruptcies have destroyed some crypto
investors’ confidence in centralized platforms

The Colorado-based investor, who mostly trades non-fungible tokens, said he chose to tap in the
digital asset space for the potentially fruitful rewards, despite huge risks. Still, things such as FTX’s
collapse “makes even people like me lose a lot of trust in the system,” he said. 

A 22-year-old engineer, who is based in Australia, said he also pulled his $7,000 out of FTX last
week, five hours after Bankman-Fried’s tweet that FTX was fine. “My first train of thought was if FTX
becomes bankrupt or something, the Americans might save themselves,” the investor said. FTX.US
was only available to U.S. customers, while FTX.com targeted customers in other areas of the world,
including Australia. Bankman-Fried and many top FTX executives are American citizens.

“The Americans, they might save themselves. I’m going to be absolutely destroyed,” the Australia-
based investor said.

FTX first froze withdrawals for most of its international customers, while some investors were able
to take out their money from FTX.US for a few more days. In fact, one day before FTX and FTX.US
filed for bankruptcy, Bankman-Fried tweeted that FTX.US “was not financially impacted by this
shitshow. It’s 100% liquid.”

For his part, the Colorado-based customer said he felt lied to. “I guess I sort of understand where he
(Bankman-Fried) is in this tough situation, and I feel bad for him,” the investor said. “But just to say
FTX.US is completely liquid, not affected at all and then to lump them into a Chapter 11 bankruptcy,
is mind boggling. I just don’t know how you can flat out lie like that,” he said.

Bankman-Fried didn’t respond to a request seeking comment.

Despite keeping most of his money intact, the Australian investor felt gloomy about the crypto
space after FTX’s fall. “Imagine if the London Stock Exchange just shut down, and said yeah, we’re
not gonna do any trading anymore, people will not be able to get their money out. How insane would
that be?” the investor said. “Because that’s how this is. I don’t think anyone’s gonna have any faith
anymore. It takes a lot of time to build that faith again.”

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Barron's: They Pulled Money Out of FTX

at the Last Minute Before Its
Bankruptcy: ‘Thank God I Dodged It
Twice’
Some retail investors became so "traumatized" by the collapses of several
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soon as ominous signs appeared.

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About the Author

Frances Yue " #

Frances Yue covers the cryptocurrency market for MarketWatch.

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Conversation 24 Comments 565 Viewing

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Phil in AZ
23 hours ago

For those of us who are legitimate investors it’s a disservice to everyone to call the person in this story an
investor. He is a trader / gambler / speculator. In fact the author uses trader and investor interchangeably
which is also wrong as what he is doing is not investing

Therefore I have zero sympathy for anyones loss here. This entire scheme is based on speculation and and
more people wanting “a piece of the action” there are no sound investing principles at play here

Glad you dodged a bullet kid, hope you become smart enough to invest your retirement and taxable
accounts in things that have value and grow as part of the economic pie

Reply · 28 · Share

JG
4 hours ago

The big difference between a gambler and a trader is that they don't let you bring your computer that runs
your software to the casino tables. When people do they win until they are kicked out for counting. It's not
gambling anymore than buying inventory and trying to gain buyers with marketing strategies. In fact,
because the overhead is less, it's much less risk. The line between tangible and intangible no longer exists
because those who truly understand realize it's all 0s and 1s. If you think buying Apple is investing, maybe
you should realize that more than 60% of the trades on your exchanges are AI. As for legitimacy, that was
bought a long time ago. The sooner you realize the game is skewed towards those with the money issuance
machines, the smaller your soap box will become.

Reply · · Share
Show 2 more replies

Alexander J Roetger
17 hours ago

Assuming no wrongdoing was intended, it appears Bankman-Fried fell victim to his own ambitions, while
others in his party could well have enriched themselves at investors expense. If there's no recovery the loss
of investment will be total for many. No use complaining now, this is the risk of playing roulette. Cooler
heads right from the start concluded that absent governmental presence there's no there, there. 'Nuff said.

Reply · 3 · Share

Ryan Shaeffer
23 hours ago

his fault for using a platform that is tied to lending crypto/$ and borrowing against assets that are all crypto
related. Any one should know that borrowing money against any asset that can drop 99% is just a very
terrible idea. It doesnt take a rocket scientist to see the writing on the wall!

(Edited)
Reply · 5 · Share

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