16 November 2022 FTX's woeful balance sheet Image credit

FTX's woeful balance sheet​

What do you need to know this week?

Last week, the centralised crypto-platform FTX, founded by alleged-wunderkind Sam Bankman-Fried, suffered one of the most spectacular and high-profile collapses of any company in recent memory. While the exact cause of FTX’s blow-up remains uncertain, Bloomberg columnist Matt Levine in one of his daily columns highlights some key points related to FTX’s corporate balance sheet which investors reviewed shortly before its collapse.

As a reminder, a balance sheet is one of two important financial statements. In brief, the balance sheet measures the value of assets (e.g. cash, stocks, and cryptotokens) and liabilities (e.g. retail accounts and loans). We have covered the function of balance sheets in TCLA’s series on The Business of Law Firms.

Three key highlights from Matt Levine’s report



Why is this important for your interviews?

Two or three years ago it looked like the crypto-boom would never end, especially as cryptoassets and the blockchain entered institutional markets. As a result, discussions of all things crypto and its intersection with the legal sector and legal technology were all the rage when it came to trainee applications and interviews.

However, the past twelve months have seen the value of crypto fall tremendously — largely related to increased interest rates which increase the cost of credit used to purchase cryptoassets. Likewise, as inflation bites and retail traders’ disposable income dries up, the value of crypto has fallen due to less trading volume. While these macroeconomic forces may have contributed to FTX’s collapse, the reports on its balance sheet paint a woeful picture of the management of FTX, to say the least…

Does FTX’s collapse imply to investors and advisers something fundamentally dubious or unregulatable about cryptomarkets? If not, how might financial and legal advisers help wrangle in crypto-companies to prevent future collapses? If you remain interested in the prospects of blockchain technologies, these are fruitful lines of enquiry to mine for interview fodder.