Cryptocurrency exchange FTX was plunged into further chaos on Saturday when the company said it had detected unauthorized transactions and analysts noted that hundreds of millions of dollars in assets had been moved off the platform under “suspicious circumstances “.
FTX filed for bankruptcy on Friday, one of the most high-profile crypto explosions, after traders rushed to withdraw US$6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed deal for rescue
The exchange’s dramatic fall from grace has seen its 30-year-old founder Sam Bankman-Fried, known for his shorts and T-shirt attire, go from being the poster child for crypto successes to the main character of the biggest fall in the industry.
Bankman-Fried, who lives in the Bahamas, has also been the subject of speculation about her whereabouts. He told Reuters on Saturday that he was in the Bahamas, denying speculation on Twitter that he had flown by private jet to South America.
The turmoil at FTX has seen at least $1 billion of client funds disappear from the platform, sources told Reuters on Friday. Bankman-Fried had transferred $10 billion of client funds to his trading company, Alameda Research, the sources said.
New issues emerged on Saturday when FTX’s US general counsel, Ryne Miller, said in a post on Twitter that the company’s digital assets were being moved into so-called cold storage “to mitigate the damage by observing unauthorized transactions”.
Cold storage refers to crypto wallets that are not connected to the internet to protect themselves from hackers.
Hundreds of millions in exits
Blockchain analytics firm Nansen said it saw $659 million in outflows from FTX International and FTX US in the past 24 hours.
FTX CEO Sam Bankman-Fried in an undated handout photo. (FTX/Reuters)
Blockchain analytics firm Elliptic said that around US$473 million in cryptoassets were “removed from FTX wallets under suspicious circumstances early this morning”, but could not confirm that the tokens had been stolen.
Cryptocurrency exchange Kraken said: “We can confirm that our team knows the identity of the account associated with the ongoing FTX hack, and we are committed to working with law enforcement to make sure they have everything they need to investigate this matter sufficiently.”
FTX was not immediately available for comment on the releases or Kraken’s statement.
The collapse stunned investors and prompted fresh calls to regulate the crypto-asset sector, which has seen losses pile up this year as cryptocurrency prices collapsed.
“Things will continue to boil over after the FTX crash,” said Alan Wong, chief operating officer of the Hong Kong Digital Asset Exchange.
“With an $8 billion gap between liabilities and assets, when FTX becomes insolvent, it will set off a domino effect, causing a number of FTX-related investors to go bankrupt or be forced to sell assets. In a bear market il ·liquid, the event will result in a new round of cryptocurrency falls as well as a liquidation of leverage.”
Consequences of the market
Since its founding in 2019, FTX had raised over $2 billion from major investors including Sequoia, SoftBank, BlackRock and Temasek. By January, FTX had raised $400 million from investors at a $32 billion valuation.
SoftBank and Sequoia Capital said they were marking their investments in FTX to zero.
Cryptocurrency exchange Coinbase Global Inc. will also write off the investment its business arm made in FTX in 2021, according to a person familiar with the matter.
Bitcoin fell below US$16,000 for the first time since 2020 after Binance pulled out of its bailout deal on Wednesday.
On Saturday, it was trading around US$16,831, up more than 75 percent from the all-time high of US$69,000 it hit in November last year.
LOOK | Lessons from the FTX collapse:
The former regulatory executive assesses the collapse of FTX
Charley Cooper, a former executive at commodities regulator CFTC, says the FTX collapse is a good lesson in the dangers inherent in the cryptocurrency space.
FTX’s FTT token fell around 91 percent this week. Cryptocurrency stocks and blockchain-related companies have also declined.
“We believe the cryptocurrency markets remain too small and too isolated to cause contagion to financial markets, with a market cap of $890 billion compared to $41 trillion in the US,” Citi analysts wrote.
“Over four years, FTX raised $1.8 billion from venture capital and pension funds. This is the main way financial markets could suffer, as it may have more minor implications for portfolio shocks in a volatile macro regime “.
In its bankruptcy petition, FTX Trading said it has assets of $10 billion to $50 billion, liabilities of $10 billion to $50 billion and more than 100,000 creditors. John J. Ray III, a restructuring expert, was appointed to take over as CEO.
The U.S. securities regulator is investigating FTX.com’s handling of customer funds amid a liquidity crisis, as well as its crypto-lending activities, a source with knowledge of the investigation said.
Hedge fund Galois Capital had half of its assets stuck in FTX, the Financial Times reported on Saturday, citing a letter from co-founder Kevin Zhou to investors and estimating the amount to be around US$100 million.