The collapse of FTX, the world’s third cryptocurrency exchange, which filed for bankruptcy on Friday, continues to affect the cryptocurrency market. Some market participants are trying to reassure customers, while others are offering settlement options for the cryptocurrency market to prevent FTX from repeating its history.
What’s going on with cryptocurrencies
Amid the Sam Bunkman-Fried FTX crisis, almost all cryptocurrencies have fallen in price over the past week. Bitcoin (according to CoinMarketCap) lost more than 19% in seven days, Ethereum lost more than 20% and BNB lost more than 14%.
The FTT token, associated with the FTX exchange, depreciated by more than 93% over the week. The Solana token, also linked to the bankrupt Bankman-Fried crypto exchange, lost more than 54% in seven days.
Binance founder Changpeng Zhao’s statement had a briefly positive impact on the market: he suggested creating a fund that would help cryptocurrency players facing liquidity shortages (as happened with FTX). After these words (although no specifics were given by Changpeng) prices of major cryptocurrencies briefly moved up, bitcoin was approaching the $17,000 mark.
The growth was short-lived and insignificant. The market has been negatively impacted by indications that FTX clients will apparently not be able to recover most of their funds. According to Bloomberg, FTX’s assets are valued at $900 million and its liabilities to clients at $9 billion.
Who suffered from FTX’s collapse
Other crypto exchanges are trying to reassure customers, some are calculating losses and taking action to stop the turnover of the FTT token.
For example, crypto exchange Huobi had $18.1 million worth of FTX tokens blocked, of which $13.2 million were customer funds and the rest was money from the parent company Hbit. Huobi’s controlling shareholder Li Lin said he would provide the exchange with an unsecured loan of up to $14 million if needed to cover customer liabilities. But even despite that announcement, Huobi shares were down 14% on the Hong Kong exchange, with the Huobi token rising today but losing more than 39% in a week.
Cryptocurrency hedge fund Galois Capital said it was at risk of losing between $40 million and $45 million due to the collapse of FTX.
Crypto exchange AAX suspended withdrawals today, citing system upgrades to protect against malicious attacks, which are seen “in these turbulent times” in light of news of the insolvency of “one of the biggest players in the industry” (apparently FTX).
Crypto-exchange Kraken has frozen accounts suspected of fraud, negligence or misconduct related to FTX. The company noted that it is in contact with law enforcement and will make a decision on each suspicious account separately.
The world’s largest cryptocurrency exchange, Binance, has suspended deposit agreements with FTT.
It as well as smaller Crypto.com, OKX and Deribit have also promised to release evidence that they have enough reserves to meet customer obligations. Coinbase, according to the Financial Times, sent out a letter to customers assuring them that all customer assets and accounts are safe and the company’s financial health is sound.
Despite the exchanges’ best efforts, customers have been actively withdrawing funds from the digital asset market or transferring them from deposits to cryptocurrency wallets in recent days, CoinMarketCap data shows.
What the FTX founder faces
Bankman-Fried was questioned by Bahamian police and regulators in the island nation. Local authorities have launched an investigation that will examine whether FTX has committed criminal offenses. In the U.S., the Securities and Exchange Commission has taken an interest in the FTX story.
Lawyers interviewed by The Wall Street Journal believe Bankman-Fried could be criminally liable despite lax regulation of the cryptocurrency market. Manhattan prosecutors are investigating the FTX debacle, the Journal’s sources said. Prosecutors intend to prove that the exchange invested customer funds in Alameda Research, which is also owned by Bankman-Fried.
Using funds in this way without the consent of investors is prohibited in the regulated securities market. In the case of cryptocurrencies, there is no such legal framework, but prosecutors could bring this up under articles of fraud or embezzlement.
