Collapsed crypto exchange FTX investigating ‘unauthorized transactions’

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Crypto exchange FTX was engulfed in more chaos on Saturday when the company said it had detected unauthorized transactions and analysts flagged that hundreds of millions of dollars of assets had been moved from the platform in “suspicious circumstances.”

FTX filed for bankruptcy on Friday, one of the highest profile crypto blowups, after traders rushed to withdraw $6 billion US from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.

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, morph from being the poster child of crypto’s successes to the main character of the industry’s biggest crash.

Bankman-Fried, who lives in the Bahamas, has also been the subject of speculation about his whereabouts. On Saturday he told Reuters 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 US of customer funds vanish from the platform, sources told Reuters on Friday. Bankman-Fried had transferred $10 billion US of customer funds to his trading company, Alameda Research, the sources said.

New problems emerged on Saturday when FTX’s U.S. general counsel Ryne Miller said in a Twitter post that the firm’s digital assets were being moved into so-called cold storage “to mitigate damage upon observing unauthorized transactions.”

Cold storage refers to crypto wallets that are not connected to the internet to guard against hackers.

Hundreds of millions in outflows

Blockchain analytics firm Nansen said it saw $659 million US in outflows from FTX International and FTX U.S. in the last 24 hours.

FTX CEO Sam Bankman-Fried in an undated handout photo. (FTX/Reuters)

A separate blockchain analytics firm Elliptic said that around $473 million US worth of cryptoassets were “moved out of FTX wallets in suspicious circumstances early this morning,” but that it could not confirm that the tokens had been stolen.

Crypto exchange Kraken said: “We can confirm our team is aware of the identity of the account associated with the ongoing FTX hack, and we are committed to working with law enforcement to ensure they have everything they need to sufficiently investigate this matter.”

FTX was not immediately available for comment about the outflows or Kraken’s statement.

The collapse shocked investors and prompted fresh calls to regulate the cryptoasset sector, which has seen losses stack up this year as cryptocurrency prices collapsed.

“Things will continue to simmer after the FTX crash,” said Alan Wong, operations manager of Hong Kong Digital Asset Exchange.

“With a gap of $8 billion between liabilities and assets, when FTX is insolvent, it will trigger a domino effect, which will lead to a series of investors related to FTX going bankrupt or being forced to sell assets. In an illiquid bear market, the event will lead to a new round of cryptocurrency declines, as well as a liquidation of leverage.”

Market fallout

Since its founding in 2019, FTX had raised more than $2 billion US from top investors including Sequoia, SoftBank, BlackRock and Temasek. In January, FTX had raised $400 million US from investors at a $32-billion US valuation.

SoftBank and Sequoia Capital said they were marking their investments in FTX down to zero.

Cryptocurrency exchange Coinbase Global Inc. will also write off the investment its ventures arm made in FTX in 2021, according to a person familiar with the matter.

Bitcoin fell below $16,000 US for the first time since 2020 after Binance abandoned its rescue deal on Wednesday.

On Saturday, it was trading around $16,831 US, down by more than 75 per cent from the all-time high of $69,000 US it reached in November last year.

WATCH | Lessons to take away from FTX collapse: 

Former regulatory executive weighs in on FTX collapse

Charley Cooper, a former executive at commodities regulator the CFTC, says the collapse of FTX is a good lesson of the inherent dangers of the cryptocurrency space.

FTX’s token FTT plunged by around 91 per cent this week. Shares of cryptocurrency and blockchain-related firms have also declined.

“We believe cryptocurrency markets remain too small and too siloed to cause contagion in financial markets, with an $890 billion market cap in comparison to U.S. equity’s $41 trillion,” Citi analysts wrote.

“Over four years, FTX raised $1.8 billion from venture capital and pension funds. This is the primary way financial markets could suffer, as it may have further minor implications for portfolio shocks in a volatile macro regime.”

In its bankruptcy petition, FTX Trading said it has $10 billion US to $50 billion US in assets, $10 billion US to $50 billion US in liabilities, 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’s handling of customer funds amid a liquidity crunch, as well as its crypto-lending activities, a source with knowledge of the inquiry said.

Hedge fund Galois Capital had half of its assets trapped on FTX, the Financial Times reported on Saturday, citing a letter from co-founder Kevin Zhou to investors and estimating the amount to be around $100 million US.

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