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In the world of cryptocurrencies, where innovation and volatility often go hand in hand, certain events can send shockwaves through the entire industry. Recall 4 events that shook the crypto world.
The cryptocurrency sphere has witnessed many amazing moments that shook it and caused significant changes in it. There are 4 such events that really shook the cryptocurrency world.
February 2014: Mt.Gox hack
Events that shook the crypto world: February 2014 – Hack Mt.Gox
Mt.Gox, once the largest cryptocurrency exchange in the early days of Bitcoin, has shut down. Launched in 2007 by American programmer Jed McCaleb as Magic: The Gathering Online Exchange, Mt.Gox originally served as a card exchange for the popular fantasy game. However, in 2010 it turned into a Bitcoin exchange, quickly becoming an important player in the market.
Mt.Gox has changed the game by offering a simplified platform for buying and selling BTC. While this came at the cost of transferring control of the assets to the exchange, investors saw this as a necessary compromise. The success of Mt.Gox was immediate. As the largest crypto exchange at the time, it handled a significant proportion of all Bitcoin transactions.
Over time, the owner of Mt.Gox changed. In 2011, McCaleb sold the platform to French developer Marc Karpeles, who became the exchange’s CEO. In the same year, the platform faced the problem of the first hack.
The attackers managed to gain access to the computer of the Mt.Gox auditor and change the price of Bitcoin to 1 cent. They quickly bought approximately 2,000 BTC at this artificial price using customer accounts on the platform. In addition, around 650 Bitcoins were bought by Mt.Gox customers at a fake price, none of which were ever returned.
Since the hack, Mt.Gox has taken steps to increase its security, including turning off most of its Bitcoins and leaving them in cold storage. If only the management knew that this measure would not be enough to protect the exchange in the long run.
Mt.Gox continued to grow, and by 2013, the company had cemented its position as the largest cryptocurrency trading platform, handling over 70% of all Bitcoin transactions. With such high volume, Mt.Gox has become synonymous with the cryptocurrency market. However, while it seemed to prosper on the surface, there were problems behind the scenes.
In May 2013, Mt.Gox faced legal action from a former Coinlab business partner alleging breach of contract and seeking $75 million in damages. At the same time, the exchange came under investigation by the US Department of Homeland Security for operating without a license in the country.
These problems turned out to be cracks that eventually destroyed the dam. In February 2014, the exchange suspended Bitcoin withdrawals, citing the need for a technical evaluation. Subsequent revelations revealed a stunning truth: Mt.Gox was the victim of the largest cryptocurrency hack in history. The hackers stole 744,408 BTC from customers’ wallets, as well as 100,000 BTC held by the exchange, which at the time was worth approximately $473 million.
The consequences were devastating. The price of Bitcoin has plummeted and trust in the industry has been eroded. Mt.Gox then filed for bankruptcy protection in Japan and the US, marking the end of an era. An investigation later revealed that the exchange had been insolvent for years, and the stolen BTC was the final blow to its already precarious financial situation.
June 2021: Bitcoin in El Salvador
Events that shook the crypto world: June 2021 – Bitcoin in El Salvador
On June 9, 2021, El Salvador made a historic decision when President Naib Bukele announced the adoption of Bitcoin as legal tender. This groundbreaking decision marked the first time that Bitcoin was recognized as an official currency.
At a time when many countries have been tightening their regulations in the industry, including China’s total ban on crypto transactions, El Salvador’s move has attracted significant attention. The passage of the Bitcoin Law has provided various benefits for crypto businesses and investors, such as capital gains tax exemption for BTC due to its legal tender status.
But this decision has faced opposition from global financial institutions and economic experts. The International Monetary Fund (IMF) has called on El Salvador to stop using Bitcoin as legal tender. At the same time, the World Bank expressed concerns about environmental impact and transparency issues and refused to help with implementation.
Undeterred, President Bukele announced plans to use the country’s renewable geothermal energy to mine Bitcoin and encouraged local companies to use BTC to pay wages.
In September 2021, El Salvador made history again by becoming the first country to buy Bitcoin, acquiring the initial 200 BTC. This marked the beginning of the country’s entry into the cryptocurrency market, followed by more purchases. El Salvador currently owns over 2,380 BTC, maintaining unwavering confidence in the future of the asset despite significant fluctuations in its price.
May 2022: Terra collapse
Events that shook the crypto world: May 2022 – Terra collapse
Stablecoins have often been considered the safer choice in the digital asset space due to their relatively stable prices. However, this view has been shattered in the Terra ecosystem.
Terra is a blockchain protocol that uses algorithmic stablecoins to create a payment network. At its peak, Terra provided investors with completely stable prices due to the relationship between its native LUNA token and the popular dollar-pegged stablecoin in its ecosystem.
Trouble in the Terra ecosystem began when an anonymous wallet dumped over $500 million worth of UST. Whether this action was due to market volatility or a malicious attack on the Terra system remains unknown. In an attempt to save UST, the Luna Foundation Guard (LFG), the organization in charge of creating reserves, emptied its Bitcoin reserve to support the stablecoin peg.
However, these efforts failed to prevent the collapse of the stablecoin. When UST lost its peg, investors rushed to sell, causing LUNA to lose 99.9% of its value.
The damage extended beyond the Terra ecosystem as this event exacerbated the prevailing bearish sentiment in the market, pulling the entire crypto market with it. The collapse of Terra UST wiped out over $26 billion from the stablecoin market and over $700 billion from the wider crypto sector.
Even before the collapse of UST, many analysts had warned investors about the risks associated with the Terra mechanism, and they were quick to voice their earlier concerns when the Terra ecosystem collapsed.
The founders of the project have become objects of close attention of the industry. After Terra’s disastrous fall, Korean investors initiated legal action against the co-founders, filing criminal and civil lawsuits in an attempt to seize Do Kwon’s assets.
Do Kwon is currently facing forgery charges in Montenegro, where he was arrested while on the run. He faces 40 years in prison.
November 2022: FTX collapse
Events that shook the crypto world: November 2022 – the collapse of FTX
November 2022 was marked by the collapse of Sam Bankman-Fried and his FTX crypto exchange. As FTX has grown, the 31-year-old entrepreneur has become synonymous with the company, gaining notoriety in the cryptocurrency world.
Founded in 2019, FTX quickly gained international recognition with aggressive marketing tactics and attractive trading fees, attracting cryptocurrency users and other companies. The exchange promised significant returns on digital assets, surpassing traditional banking offerings.
FTX and SBF have been looking to solidify their dominance by acquiring established companies such as Blockfolio, LedgerX, and Liquid Global. With investments of almost $2 billion from venture capital firms, FTX’s valuation reached $32 billion by January 2022, ranking the company as the third largest crypto exchange in the industry.
To further solidify his company’s dominance in the space, SBF became the White Knight, bailing out numerous firms hit by the first wave of the bear market that followed the Terra-Luna crash.
However, in the first two weeks of November, FTX and its founder lost their luster as the third largest crypto exchange collapsed. Trouble began when a report from CoinDesk revealed that FTX subsidiary Alameda Research was in financial trouble. The publication also uncovered a major fraud that led to the loss of billions of dollars of investors’ assets.
Consisting primarily of Solana’s FTT FTX token and Solana’s SOL token, Alameda’s balance sheet reveals $9 billion in liabilities, $900 million in assets, and poorly labeled entries showing a $8 billion negative balance. Investigations revealed FTX diverting investor funds to other investments using FTT as collateral through Alameda.
Upon learning the news, Binance CEO Changpeng Zhao announced plans to sell his company’s FTT assets worth more than $500 million. The announcement triggered panic selling, rendering the FTT token virtually worthless. FTX then suspended all withdrawals from its platform, causing shock to the market.
Initially, CZ offered to help FTX and prevent a wider market crash. However, the deal fell through due to closer scrutiny of FTX’s balance sheet and further reports of misuse of customer funds.
The collapse of FTX had a cascading effect throughout the industry, especially affecting crypto firms associated with it. Many companies, such as BlockFi, with significant influence over FTX, have had to put withdrawals on hold due to the sheer volume of user requests. Most of these firms ended up filing for bankruptcy protection.
Major FTX investors, including CoinShares, Galaxy Digital, BlackRock and others, wrote off millions of dollars in losses. FTX initiated bankruptcy proceedings, which resulted in SBF stepping down as CEO. Sam was arrested in the Bahamas on December 12, extradited to the US and released on $250 million bail. He faces several criminal charges, including money laundering, wire fraud, campaign finance violations, and securities fraud.
The FTX saga has also sparked increased scrutiny of the crypto industry from global financial regulators. The UK government has announced plans to impose strict regulations on the industry in response to the FTX collapse.
As of April 2023, FTX has managed to recover over $7 billion in lost customer assets. The funds are now to be distributed to more than 150,000 affected clients. The management plans to restart the exchange.
While most of these developments have hurt the crypto market as a whole, it is worth noting that the industry has always found a way to develop further. At the moment, the cryptocurrency industry is under heavy pressure from regulators, but this does not mean that it will not transform.
The main thing is that there should be more transparency and responsibility of participants in the crypto market in order to prevent the fall of exchanges and help cryptocurrencies become more and more popular in the world. Events that will have an impact on the crypto world will still happen and you need to be ready for them!
Author: Vadim Gruzdev, analyst Freedman Сlub Crypto News
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