FTX, the third-largest cryptocurrency exchange by volume at one point, is perhaps the first name that springs to mind when discussing the biggest disasters in the cryptocurrency market. Its failure not only resulted in a decline in Bitcoin’s value but also had a knock-on effect that led to the bankruptcy of several well-known companies.
Early cryptocurrency investors, however, would argue that they have seen worse. The infamous Mt. Gox collapse caused one of the longest bear markets in cryptocurrency history and was just as disruptive, if not more so.
Due to the fact that both exchanges were firmly established in the market, each crash had a devastating impact on the state of cryptocurrency as a whole. Thousands lost their money, and investor confidence took a massive hit. But looking at the raw numbers, a distinction can be made between the two events. This brings us to the ultimate question, which crash affected crypto more — FTX or Mt. Gox?
Mt. Gox Fall
Mt. Gox was a Tokyo-based decentralised cryptocurrency exchange (DEX) that operated between 2010 and 2014. Established by Jed McCaleb in 2007, who later became Ripple’s CTO, Mt. Gox initially operated as a website catering to players of a card game known as “Magic: The Gathering”. The ownership of the site was passed on to Mark Karpeles in 2011, who transformed it into the world’s largest Bitcoin exchange over the next few years. At the time, Reuters reported that under Karpeles, Mt. Gox became ‘the face of Bitcoin’ as it facilitated the largest trading volumes amongst its competitors.
Unfortunately, however, its rise to prominence did not go unnoticed by hackers. In a series of instalments that spanned four years between 2011 and 2014, hackers stole up to $850,000 worth of Bitcoins from the exchange. At the current market price of $29,000, the stolen goods represent a little over $2 billion. In the wake of the scandal, Mt. Gox was forced to freeze customer withdrawals and trading operations. It was later revealed that transaction malleability, an underlying bug, allowed hackers to siphon bitcoins directly from the exchange’s wallet.
Also Read: Crypto exchange Coinbase posts smaller loss on cost cuts, more revenue sources
Prior to the theft, the exchange faced numerous complaints from users regarding its software. Some said that they were unable to withdraw funds, and technical bugs impeded the exchange’s ability to keep track of transaction details.
Ultimately, Mt. Gox filed for bankruptcy protection in the US in March 2014 to briefly evade legal action by traders who claimed that the crypto exchange was a front for stealing Bitcoins. The business eventually ceased operations in 2014, but the majority of its clients have still not received refunds for their losses.
FTX Collapse: A Rewind
However, a series of events came together to cause its collapse. It all began when CoinDesk reported that Alameda Research, a crypto hedge fund owned by SBF, held billions of dollars worth of FTX’s native token, FTT, and had been using it as collateral to secure loans. This meant that FTX had overleveraged its position in the market, and a decline in FTT’s value would severely weigh on both, Alameda and FTX.
Later, the world’s largest crypto exchange, Binance, decided to offload its FTT holdings, which were thought to be around $580 million. The same induced massive panic amongst FTX users, who began to withdraw their funds from the platform. The final nail in the coffin came after Binance backed out of a potential deal to acquire FTX. Eventually, FTX filed for bankruptcy in November 2022, unable to continue its business amidst a liquidity crunch. It was estimated that nearly $9 billion in customer funds went missing at the exchange.
Also Read: Does the next Bitcoin halving suggest an incoming bull run?
Which impact was bigger?
Data from the Mt. Gox and FTX collapses were compared in research by analytics company, Chainalysis. According to the report, it was first necessary to comprehend the size of each exchange in order to analyse which crash had a greater impact on the market. It argued that objectively, Mt. Gox was a bigger industry player as it averaged 46 percent of all exchange inflows compared to FTX’s inflows of 13 percent. Separate reports also claimed that Mt. Gox accounted for over 70 percent of all Bitcoin transactions during the time, while FTX only accounted for 10 percent.
Although Mt. Gox’s overall exchange share was declining, leading to its collapse in contrast to FTX, Chainalysis said that the former was ultimately a larger part of the crypto ecosystem. This was because Mt. Gox accounted for 10.9 percent of total service inflows in the 12 months before its collapse, compared to 4.7 percent for FTX.
Let us also compare how Bitcoin’s price fared during each crisis. Once Mt. Gox became defunct, Bitcoin’s price fell from a peak of around $457 in March 2014 to $310 by December 2014, a fall of 32 percent. It later plummeted further to $170 by January 2015. It was only after August 2015 that the market started to show signs of a bullish rebound.
Separately, with the demise of FTX, the price of Bitcoin fell from $70,000 in November 2021 to $15,500 over the next 12 months. The same represented a decline of 77.8 percent. The market remained shaky until January 2023, after which Bitcoin started to recoup some of its earlier losses. At the time of writing, Bitcoin was trading around the $29,000 mark.
Conclusion
There are numerous ways to interpret the statistics presented above. One is that it seems like Mt. Gox was a more significant player in the market than FTX at its height. FTX, as opposed to Mt. Gox, appeared to have a more pronounced impact on the price of Bitcoin. However, the market appeared to have bounced back relatively quickly after the FTX call when compared to Mt. Gox. In other words, the FTX crash seemed to be more extreme in terms of absolute data, but the Mt. Gox catastrophe was worse in terms of relative data.
Also Read: What will happen to cryptocurrencies if the US economy crumbles
Early cryptocurrency investors, however, would argue that they have seen worse. The infamous Mt. Gox collapse caused one of the longest bear markets in cryptocurrency history and was just as disruptive, if not more so.
Due to the fact that both exchanges were firmly established in the market, each crash had a devastating impact on the state of cryptocurrency as a whole. Thousands lost their money, and investor confidence took a massive hit. But looking at the raw numbers, a distinction can be made between the two events. This brings us to the ultimate question, which crash affected crypto more — FTX or Mt. Gox?
Mt. Gox Fall
Mt. Gox was a Tokyo-based decentralised cryptocurrency exchange (DEX) that operated between 2010 and 2014. Established by Jed McCaleb in 2007, who later became Ripple’s CTO, Mt. Gox initially operated as a website catering to players of a card game known as “Magic: The Gathering”. The ownership of the site was passed on to Mark Karpeles in 2011, who transformed it into the world’s largest Bitcoin exchange over the next few years. At the time, Reuters reported that under Karpeles, Mt. Gox became ‘the face of Bitcoin’ as it facilitated the largest trading volumes amongst its competitors.
Unfortunately, however, its rise to prominence did not go unnoticed by hackers. In a series of instalments that spanned four years between 2011 and 2014, hackers stole up to $850,000 worth of Bitcoins from the exchange. At the current market price of $29,000, the stolen goods represent a little over $2 billion. In the wake of the scandal, Mt. Gox was forced to freeze customer withdrawals and trading operations. It was later revealed that transaction malleability, an underlying bug, allowed hackers to siphon bitcoins directly from the exchange’s wallet.
Also Read: Crypto exchange Coinbase posts smaller loss on cost cuts, more revenue sources
Prior to the theft, the exchange faced numerous complaints from users regarding its software. Some said that they were unable to withdraw funds, and technical bugs impeded the exchange’s ability to keep track of transaction details.
Ultimately, Mt. Gox filed for bankruptcy protection in the US in March 2014 to briefly evade legal action by traders who claimed that the crypto exchange was a front for stealing Bitcoins. The business eventually ceased operations in 2014, but the majority of its clients have still not received refunds for their losses.
FTX Collapse: A Rewind
Let’s refresh your memory with a brief reminder of how FTX came to be the largest crypto failure in recent memory. Founded by Sam-Bankman Fried in 2018, the exchange went on to become the third-largest crypto exchange by volume over the course of two years. At its peak, it catered to over a million users and offered trading pairs on more than 300 cryptocurrencies.
However, a series of events came together to cause its collapse. It all began when CoinDesk reported that Alameda Research, a crypto hedge fund owned by SBF, held billions of dollars worth of FTX’s native token, FTT, and had been using it as collateral to secure loans. This meant that FTX had overleveraged its position in the market, and a decline in FTT’s value would severely weigh on both, Alameda and FTX.
Later, the world’s largest crypto exchange, Binance, decided to offload its FTT holdings, which were thought to be around $580 million. The same induced massive panic amongst FTX users, who began to withdraw their funds from the platform. The final nail in the coffin came after Binance backed out of a potential deal to acquire FTX. Eventually, FTX filed for bankruptcy in November 2022, unable to continue its business amidst a liquidity crunch. It was estimated that nearly $9 billion in customer funds went missing at the exchange.
Also Read: Does the next Bitcoin halving suggest an incoming bull run?
Which impact was bigger?
Data from the Mt. Gox and FTX collapses were compared in research by analytics company, Chainalysis. According to the report, it was first necessary to comprehend the size of each exchange in order to analyse which crash had a greater impact on the market. It argued that objectively, Mt. Gox was a bigger industry player as it averaged 46 percent of all exchange inflows compared to FTX’s inflows of 13 percent. Separate reports also claimed that Mt. Gox accounted for over 70 percent of all Bitcoin transactions during the time, while FTX only accounted for 10 percent.
Although Mt. Gox’s overall exchange share was declining, leading to its collapse in contrast to FTX, Chainalysis said that the former was ultimately a larger part of the crypto ecosystem. This was because Mt. Gox accounted for 10.9 percent of total service inflows in the 12 months before its collapse, compared to 4.7 percent for FTX.
Let us also compare how Bitcoin’s price fared during each crisis. Once Mt. Gox became defunct, Bitcoin’s price fell from a peak of around $457 in March 2014 to $310 by December 2014, a fall of 32 percent. It later plummeted further to $170 by January 2015. It was only after August 2015 that the market started to show signs of a bullish rebound.
Separately, with the demise of FTX, the price of Bitcoin fell from $70,000 in November 2021 to $15,500 over the next 12 months. The same represented a decline of 77.8 percent. The market remained shaky until January 2023, after which Bitcoin started to recoup some of its earlier losses. At the time of writing, Bitcoin was trading around the $29,000 mark.
Conclusion
There are numerous ways to interpret the statistics presented above. One is that it seems like Mt. Gox was a more significant player in the market than FTX at its height. FTX, as opposed to Mt. Gox, appeared to have a more pronounced impact on the price of Bitcoin. However, the market appeared to have bounced back relatively quickly after the FTX call when compared to Mt. Gox. In other words, the FTX crash seemed to be more extreme in terms of absolute data, but the Mt. Gox catastrophe was worse in terms of relative data.
Also Read: What will happen to cryptocurrencies if the US economy crumbles
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