NEW YORK (Reuters) – Bitcoin and other cryptocurrencies came under pressure Monday after the spectacular collapse of cryptocurrency exchange FTX last week, as regulators opened investigations and rival exchanges sought to reassure nervous investors of their stability.
The collapse of FTX, once the cryptocurrency industry darling with a valuation of $32 billion as of January, has spurred investigations by the US Department of Justice, the Securities and Exchange Commission and the Commodity Futures Trading Commission, a person familiar with the matter said.
Another source familiar with the investigation said the SEC investigation is also targeting FTX executives and their knowledge of client money handling and any possible violation of securities laws.
Federal Reserve Vice Chairman Lyle Brainard said that while the cryptocurrency industry has described digital assets as fundamentally different from traditional finance, the sector has proven to be subject to the same risks and should be subject to the same rules.
“It reinforces I think this need to make sure that cryptocurrency finance, because it is no different from traditional finance in the risks it takes, has to be under the regulatory perimeter,” she said.
FTX filed for bankruptcy on Friday in one of the largest cryptocurrency blowouts after frenzied traders pulled $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed bailout.
Bitcoin, which hit a record high of $69,000 a year ago, fell below $16,000 early Monday before recovering to trade at $16,590, up 1.72% at 2 PM ET (1900 GMT). Bitcoin fell around 18% in November and is set to see its biggest monthly percentage drop since June when the fallout from the TerraUSD stablecoin failure sent markets tumbling.
The value of the FTX token was just $1.30, down 94% in November, while Crypto.com’s Kronos token halved in the past week to 6 cents, according to pricing site Coingecko.
collapse effect
The rapid collapse of FTX, once the white knight of struggling crypto companies, has sent shock waves through the cryptocurrency industry, which is poised for more repercussions.
LedgerX LLC, a subsidiary of FTX, formally withdrew its application on Monday of last December with the US CFTC to be allowed to offer fully unsecured products.
Cryptocurrency lender BlockFi, which signed a deal with FTX to provide it with a $400 million revolving credit facility with an option to buy it for $240 million, said Monday that it has significant exposure to FTX.
Other crypto exchanges are publishing details of their reserves and promising more disclosures in an effort to calm investor nerves amid unverified rumors.
Chris Marsalek, CEO of Singapore-based crypto exchange Crypto.com, which made headlines in 2021 with a $700 million deal to rename Staples Center in Los Angeles into Crypto.com Arena and whose platform was promoted in a commercial featuring the actor Matt Damon, refuting suggestions he was in trouble.
In an “Ask Me Anything” YouTube livestream on Monday, Marsalek said that the exchange always keeps reserves to match all customers’ coins held on its platform, and that an audited guide to Crypto.com’s reserves will be published within weeks.
The move came after investors took to Twitter over the weekend to question the October 21 transfer of $400 million worth of ether tokens to the Gate.io exchange.
Marsalek tweeted on Sunday that ether has been recovered and returned to the exchange, but the Wall Street Journal reported that withdrawals on Crypto.com spiked over the weekend.
A Crypto.com spokesperson did not respond to a request for comment on whether outflows to the platform continued on Monday.
Crypto.com is among the top 10 such exchanges by trading volume globally, but is smaller than market leaders FTX and Binance.
Another cryptocurrency exchange, Kraken, said on Twitter Sunday that it had frozen the accounts of FTX, Alameda Research’s cryptocurrency trading subsidiary, and its executives.
“We have been actively monitoring recent developments in FTX ownership and, in contact with law enforcement, have frozen Kraken account access to certain funds we suspect are associated with FTX-related ‘fraud, negligence or misconduct’,” a Kraken spokesperson said. .
Separately, smaller Asia-based exchange AAX halted withdrawals over the weekend, citing failures at an unnamed third-party partner during a scheduled system update.
AAX said it hopes to resume normal operations within seven to 10 days, but within Note to customers He said, “In light of the bankruptcy of one of the largest players in our industry last week, cryptocurrency users are rightly concerned about the operational and financial stability of centralized digital asset exchanges.”
Changpeng Zhao, CEO of Binance, the world’s largest cryptocurrency exchange, said he was looking forward to setting up an industry recovery fund to help projects that were “otherwise strong but in a liquidity crisis.”
Binance last week signed a non-binding letter of intent to buy FTX’s non-US assets but later abandoned the deal, precipitating its bankruptcy. Zhao has since warned of a “cascading” crypto crisis.
Additional reporting by John McCrank in New York, Vidya Ranganathan in Singapore and Alun John in London Additional reporting by Chris Prentice in New York, Chingwe Kok in Singapore and Elizabeth Howcroft in London Editing by Christine Donovan, Jonathan Otis and Matthew Lewis
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