The troubles of FTX, a major digital currency trading platform, are causing turmoil across the industry. FTX is now on the brink of bankruptcy, with many customers worried about their money.
The bad news about the ailing crypto exchange FTX does not stop. The Bahamian securities regulator announced on Thursday (local time) that it had frozen the assets of FTX Digital Markets. Next, an insolvency administrator could take over the settlement. The supervisory authority has already submitted a corresponding court application.
FTX Digital Markets is a Bahamas-based company from US entrepreneur Sam Bankman-Fried’s crypto empire and operates the struggling crypto exchange FTX.com. According to the securities regulator, the company is suspected of having embezzled customer funds.
Customer flight and funds deductions
The crypto platform ran into payment difficulties last Sunday after doubts about capital reserves led to customer flight and billions in funds being withdrawn. Meanwhile, FTX users in the US are also getting more and more nervous.
In fact, FTX’s international and US operations are separate. Bankman-Fried took to Twitter on Thursday to try to calm the situation, claiming that FTX.us is “100 percent liquid”. At the same time, the platform announced that it might suspend trading for a few days. US media also reported that employees in the US were trying to sell parts of the company in a kind of distress sale.
Meanwhile, crypto bank BlockFi, which was set to be acquired by FTX in the summer, halted all customer withdrawals for the time being. According to the brokerage house Genesis, 175 million dollars are on fire in trading transactions on the FTX.
Bankruptcy threat
On Wednesday, it initially looked as if the competitor Binance would take over the company. However, after a comprehensive audit, Binance refrained from the planned takeover of the FTX.com division, the world’s largest crypto exchange had announced. The move was intended to absorb the rival’s liquidity bottleneck, which industry circles say should amount to seven billion dollars.
It could also be more: FTX is trying to get financial support of around $ 9.4 billion from investors and rivals, the Reuters news agency quoted an insider as saying. FTX boss Sam Bankman-Fried wanted to use the money to save the platform, said the person familiar with the plans. However, it is not clear whether Bankman-Fried will receive the funds. FTX was initially unable to comment, according to Reuters.
Regulatory Consequences?
The situation is therefore becoming increasingly critical for customers and investors. If Bankman-Fried doesn’t manage to raise a few billion dollars, at least FTX.com should be beyond rescue. The 30-year-old crypto entrepreneur had also assured last Tuesday that all deposits were protected and would be paid out in full. Moreover, he had rejected rumors about a shortage of money as false.
The turbulence could have consequences not only for customers who may lose their money but even for the entire industry. “The recent confusion is similar to the Wild West and is likely to have regulatory consequences. The developments are, therefore, also increasing the regulatory pressure all around the globe,” said Bitcoin specialist Timo Emden of Emden Research.
In fact, calls for stricter regulation of the sector are growing in the US. “Regulators have stepped in from the US to Japan to the Bahamas,” said Kami Zeng, chief analyst at cryptocurrency-focused asset manager Fore Elite. “There’s more to come.”
Bitcoin under pressure
Uncertainty about the future of FTX is leaving its mark on cryptocurrency prices. On Wednesday, the oldest cyber currency, Bitcoin, fell below the $ 16,000 mark for the first time since 2020 in the wake of the turbulence. However, the price bounced back above $17,000 after Thursday’s US inflation data. However, Bitcoin has been under pressure for a long time. In the past twelve months, it lost around 70 percent of its value.
“It should only be a matter of time before investors catch up with the smoldering concerns about the broken deal between two big names within the industry, says Emden. It is quite possible that other companies are already infected, but the symptoms are still there. The analyst comments: “The risk of contagion and concerns about a liquidity crisis remain acute,” concludes Emden.
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