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Collapse of the FTX Crypto Exchange

Nov 18, 2022

Welcome to English for Economists, the podcast meant for people working in economics who want to improve their English using real-world, contemporary examples. In this English lesson, we will look at some vocabulary surrounding the recent collapse of FTX, a large crypto-exchange firm.  

Look at this headline, published by the New York Times on November 17th.

Investor Losses From FTX’s Implosion Are Growing

As I mentioned in the introduction, FTX is a crypto exchange. What is a ‘crypto exchange’, you might ask? That question has a complicated answer, but in the simplest form,  a crypto exchange is where you go to buy and trade digital assets. It is also the place you can cash out of your investment into hard currency. This particular exchange –– the FTX exchange –– is a new company. It was founded in 2019, and at its peak in 2021, it had over one million users. It was the third-largest crypto exchange by volume. So, FTX was a big player, and it has some big investors.

Those good old days are over now.

Listen to the headline again: Investor Losses From FTX’s Implosion Are Growing

So first, what is an ‘implosion’? Well, an implosion is when something collapses inward. There is a kind of contraction.  And as this headline says, FTX has ‘imploded’.

Implosion is the opposite of ‘explosion’.  You could say that this company first had explosive growth as it increased in the size of its customer base and its volume of transactions. Then, they began to have serious problems which led to a collapse, the implosion. Explosion / Implosion.

FTX imploded.  Its value decreased, and fast!

The implosion resulted in the company going bust. FTX declared bankruptcy on November 11th after investors suddenly lost faith leading to a withdrawal of funds and support. There was a ‘run’ on FTX’. Investors began to withdraw their cash from the company after media reports provided evidence that the sister company Alameda Research was using customer funds to make risky investments.  

One of the immediate results of this implosion was that FTX’s own cryptocurrency plummeted. The cryptocurrency, called the FTX token, has fallen from a recent high of nearly $20 to a low of close to $1.50 as of today.

Okay. I just used the word cryptocurrency. So on that point, I want to digress for one moment, and by ‘digress’ I mean this: let me shift to a different, but related point in the conversation. When you say ‘let me digress’, you signal to your listeners that you are going to talk about something else, but something relevant.

So let me ‘digress for a moment and say this:

In this crypto world, many people refer to crypto assets like bitcoin as ‘currencies’. Experts dispute the use of the word currency used when talking about anything crypto-related. They point out that, the core meaning of currency is a system of money that has three basic features, or in other words, it meets three basic requirements: A currency has to be a unit of account, it has to be a store of value,  and it needs to serve as a medium of exchange.

With the collapse –– or the implosion –– of FTX, investors have been taught once again that cryptocurrencies fail miserably in their role as a store of value.

Well, let’s get back to the story. With the implosion of FTX, it has already been reported that between one to two billion dollars in clients’ funds have disappeared. Not only that, but investors in the company, including pension funds and venture capitalists, are writing down losses in the hundreds of millions of dollars. Even movie stars and sports personalities that worked to promote FTX are already facing lawsuits. There is tremendous confusion, and untangling the mess will take years.

With these large and sudden losses comes the fear of contagion. In other words, there is a threat that the FTX bankruptcy could impact traditional markets as well. It could ‘infect other markets. That’s contagion. Another way to express that connection is to say that the implosion of this company, with losses of billions of dollars, has caused a ‘spillover effect’.  When regulators hear words like contagion and spillover, they get worried.

The New York Times article goes on to say:

Lawmakers are also gearing up. Treasury Secretary Janet Yellen said on Wednesday that the crypto market needs more oversight, adding that the sector’s links to the broader financial system could cause wider stability issues.

‘Gearing up’? Well, that means getting ready. And ‘oversight’? That means reviewing and monitoring.

Time will tell what exactly the implications will be. Let’s keep our eyes on this story.

Okay… Listen up! Here is the key vocabulary from this lesson.

Implosion: A collapse.

To digress: You ‘digress’ when as you speak or write, you switch to a different, but related point. To digress. You’d say, ‘Let me digress for a moment’.  

Next, the three traditional features of a currency? Unit of account, store of value, and medium of exchange.

Contagion: Contagion is where a shock spreads out.

Gearing up? As in, “Lawmakers are gearing up?”. ‘Gearing up’ is to prepare. To get ready.

And ‘oversight’? ‘Oversight’ is to review and monitor.

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You can listen to the audio version of this article here

Image credits: Sam Bankman-Fried, Creative Commons 3.0, author: Cointelegraph

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