More chaos has engulfed troubled cryptocurrency exchange FTX, with analysts saying hundreds of millions of dollars in assets had been moved off the platform in “suspicious circumstances”.
- The collapse of FTX has prompted fresh calls to better regulate the crypto-asset sector
- Sources say at least $1.49 billion of customer funds has vanished
- Former founder Sam Bankman-Fried has stepped down as chief executive and denied speculation he had flown to South America
The exchange also revealed it had detected unauthorised access, an announcement that came after it filed for bankruptcy on Friday.
FTX’s swift downfall has become one of the highest-profile crypto blow-ups, with traders rushing to withdraw billions from the platform in just 72 hours.
Rival exchange Binance also abandoned a proposed rescue deal.
FTX chief executive John J Ray III said on Saturday the company was working with police and regulators to mitigate the problem, and was making “every effort to secure all assets, wherever located”.
“Among other things, we are in the process of removing trading and withdrawal functionality,” he said.
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 protagonist of the industry’s biggest crash.
Mr Bankman-Fried, who lives in the Bahamas, has also been the subject of speculation about his whereabouts.
On Saturday he denied social media speculation that he had flown by private jet to South America.
Billion of dollars removed from FTX platform
The turmoil at FTX has seen at least $US1 billion ($1.49 billion) of customer funds vanish from the platform, sources told Reuters.
Mr Bankman-Fried had transferred $US10 billion ($14.92 billion) of customer funds to his trading company, Alameda Research, the sources said.
New problems emerged on Saturday when FTX’s US general counsel Ryne Miller said on Twitter that the firm’s digital assets were being moved into so-called cold storage “to mitigate damage upon observing unauthorised transactions”.
Cold storage refers to crypto wallets that are not connected to the internet to guard against hackers.
Blockchain analytics firm Nansen said it saw $US659 million ($983.14 million) in outflows from FTX International and FTX US in 24 hours.
A separate blockchain analytics firm Elliptic said about $US473 million ($705.65 million) worth of crypto assets 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.
A document that Mr Bankman-Fried shared with investors on Thursday and was reviewed by Reuters showed FTX had $US13.86 billion ($20.68 billion) in liabilities and $US14.6 billion ($21.78 billion) in assets.
However, only $US900 million ($1.342 billion) of those assets were liquid, leading to the cash crunch that ended with the company filing for bankruptcy.
In its bankruptcy petition, FTX Trading said it had $US10 billion ($14.92 billion) to $US50 billion ($74.59 billion) in assets, $10 billion to $50 billion in liabilities, and more than 100,000 creditors.
Mr Ray, a restructuring expert, was appointed to take over as chief executive.
The collapse shocked investors and prompted fresh calls to regulate the crypto-asset 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.”
Cryptocurrency shares plunge amid fallout
Since its founding in 2019, FTX had raised more than $US2 billion ($2.98 billion) from top investors including Sequoia, SoftBank, BlackRock and Temasek.
In January, FTX had raised $US400 million ($596.75 million) from investors at a $US32 billion ($47.74 billion) 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 $US16,000 ($23,870) for the first time since 2020 after Binance abandoned its rescue deal on Wednesday.
On Saturday it was trading around $US16,831 ($25,109.65), down by more than 75 per cent from the all-time high of $US69,000 ($102,940) it reached in November last year.
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 US 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.”
The US securities regulator was investigating FTX.com’s handling of customer funds amid a liquidity crunch, as well its crypto-lending activities, a source with knowledge of the inquiry said.
Hedge fund Galois Capital had half 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 $US100 million ($149 million).