SINGAPORE – Regulators froze some assets of troubled cryptocurrency exchange FTX and industry peers scramble to limit losses on Friday as solvency problems at the firm worsen and chief executive Sam Bankman-Fried enacted a stricter scrutiny.
The week-long saga, which began with a run on FTX, one of the largest crypto exchanges, and a failed takeover deal by arch-rival Binance, has taken a toll on Bitcoin and other tokens that have already struggled.
FTX is scrambling to raise about $9.4 billion from investors and peers, a source said Thursday, as the exchange desperately tries to bail out after a rush of client withdrawals.
Meanwhile, the Bahamas Securities Commission said Thursday it had frozen assets held by FTX Digital Markets, an FTX subsidiary. Mr Bankman-Fried is also under investigation by the U.S. Securities and Exchange Commission for possible securities law violations, according to an unconfirmed tweet by a Bloomberg reporter.
Bitcoin plummeted 4% to $16,858 on Friday for a total of 17% losses for the month. FTX token FTT fell 27% to $2.7 with 89% losses for the month.
Trading volume in bitcoin futures and exchange-traded funds has exploded.
“Confidence is gone on the first day of this impact and there is no sign of it coming back yet,” said Kami Zeng, head of research at Fore Elite Capital Management, a Hong Kong-based crypto fund manager.
“We are already seeing the actions of regulators from the US to Japan to the Bahamas etc. Expect more to come and that is what the crypto market desperately needs right now. People get hurt and need protection.”
US lawmakers stepped up calls for action, including new legislation to regulate the sector and an investigation into what led to the collapse of FTX.
As losses mounted, more crypto lenders and platforms outlined increasing volumes and steps to shield themselves. Crypto lender BlockFi said it is pausing customer withdrawals until there is clarity on FTX.
Broker Genesis Trading announced that its derivatives business has approximately $175 million in locked funds on FTX.
“We believe the chance of an FTX bailout is 20-30% at best,” said Matthew Dibb, chief operating officer of Singapore-based crypto investment manager Stack Funds.
He noted that speculators pay 10 cents for every dollar to buy captive deposits on FTX.
“The damage appears to have been done and even if FTX were rescued it would no longer be a trade route as they have lost all credibility. A rescue of FTX would not be for the company, it would be for the customers and the crypto ecosystem.”
The seeds of FTX’s downfall were sown months earlier in Mr Bankman-Fried’s mistakes after he stepped in to bail out other crypto firms. Sources told Reuters that FTX transferred at least $4 billion to Alameda to prop up the trading company after a series of losses.
BANKING ON SUPPORT
Mr Bankman-Fried has spoken about raising $1 billion each from crypto token Tron founder Justin Sun, competitor exchange OKX and stablecoin platform Tether, according to the source with direct knowledge of the matter.
He’s seeking the rest from other funds, including current investors like Sequoia Capital, the source added.
It was not clear if Mr. Bankman-Fried would be able to raise the funds needed or if these investors would participate.
FTX’s predicament marks a stunning downfall for the 30-year-old crypto executive who was once worth nearly $17 billion.
According to a source with knowledge of the investigation, the US Securities and Exchange Commission is investigating FTX.com’s handling of customer funds and crypto lending activities. – Reuters