After the collapse of Sam Bankman Fried’s FTX crypto exchange FTX, billions of dollars of customer money evaporated, shaking confidence in a market that was already experiencing a long and brutal downturn. Now questions have piled up: what happened and how did a firm that had billions of dollars in assets just yesterday go completely broke just the next day? – Business Insider writes.

In the case of cryptocurrencies, despite several useful historical comparisons that can be referred to, none of them provide a complete picture for the simple reason that the value of cryptocurrencies is inherently determined solely by the speculative opinions of traders and investors looking to buy and sell tokens. They have no underlying asset or cash flow, no corporate profits that determine its unit price, and no connection to the production that underpins the real economy.

However, we can look at historical analogies to illustrate what happened and how money could so easily “disappear” in the crypto world.

The big difference between the collapse of FTX and the collapse of Lehman Brothers in 2008 is that Lehman Brothers had over $600 billion in assets that, while partially illiquid at the time, were real assets and could be recovered.

After Lehman collapsed, its 111,000 customers received the $106 billion owed to them, and secured creditors were paid in full. Even unsecured creditors recovered nearly $10 billion, or 41 cents on the dollar of what was owed to them.

In the case of FTX, it’s unclear whether client assets will be fully recovered from the billions of dollars that have evaporated from accounts, in part because client funds will be used thanks to the leverage of FTX subsidiary Alameda Research to offset losses caused by trading illiquid tokens.

In total, FTX had less than $1 billion in liquid assets against $9 billion in liabilities. Meanwhile, Lehman Brothers had $639 billion in assets against $613 billion in debt.

FTX also owned a $2.2 billion less liquid asset called Serum, which had a total market value of just $65 million on Monday.

The CoinDesk report that helped trigger FTX’s fall says that Alameda Research held billions of dollars worth of FTT tokens on its balance sheet, even though FTT’s total market value at the time was less than what it held on its balance sheet, once again confirming one truth: cryptocurrencies are a purely speculative asset with no underlying cash flows or real assets to salvage in bankruptcy.

The collapse of an exchange is also impressive because, unlike a normal bankruptcy of a company, investors can sell its real estate and capital equipment and monetize patents and licenses to pay off outstanding debts. However, they won’t have the funds when all the bankrupt company has are illiquid tokens that are falling in value whose buyers have disappeared.

It is worth remembering that cryptocurrencies, like gold, are based solely on the dynamics of supply and demand for them among traders and investors.