Collapse of FTX cryptocurrency under scrutiny by federal authorities | Cryptocurrencies

The rapid collapse of the cryptocurrency exchange FTX sent more shockwaves into the cryptocurrency world on Thursday, with authorities now investigating the company for potential security breaches and analysts bracing for a further drop in cryptocurrency prices.

FTX agreed earlier this week to sell itself to bigger rival Binance after experiencing the cryptocurrency equivalent of a bank run. Customers fled the exchange after worrying that FTX had sufficient capital.

A person familiar with the matter said the Department of Justice and the Securities and Exchange Commission (SEC) are looking into FTX to determine whether any criminal activity or securities crimes have been committed.

This week’s developments marked a shocking turn of events for FTX CEO and founder Sam Bankman-Fried, who was hailed as something of a savior earlier this year when he helped support a number of corporate cryptocurrencies that have had financial problems.

Investigation of Bankman-Fried and FTX by cryptocurrency practitioners and securities regulators focuses on the possibility that the company may have used customer deposits to fund hedge fund betting. Bankman-Fried, Alameda Research. In traditional markets, brokers are expected to separate client funds from other corporate assets. Violations can be punished by regulatory authorities.

Meanwhile, investors in popular digital currencies got some relief from the latest cryptocurrency crisis on Thursday after days of selling. Bitcoin rose to $ 17,691 after falling to $ 15,512 on Wednesday. Ethereum increased by 12%. The gains came after a government report showing a slight slowdown in inflation last month gave a move to riskier assets.

The cryptocurrency world hoped that Binance, the world’s largest cryptocurrency exchange, might be able to rescue FTX and its depositors. However, after Binance got a chance to take a look at the FTX books, it became clear that the smaller exchange’s problems were too big to fix.

A person familiar with the relationship between FTX and Binance described the books as a “black hole” in which it was impossible to distinguish between the assets and liabilities of the FTX exchange and those of Alameda Research. This person spoke on condition of anonymity because she was not authorized to speak publicly on the matter.

This person claimed that Bankman-Fried committed the “ultimate sin” by tapping into the custody business of FTX to fund Alameda Research.

In a further illustration of FTX’s financial difficulties, Bankman-Fried asked its investors on Wednesday for $ 8 billion to cover withdrawal requests, according to the Wall Street Journal, citing unnamed sources.

FTX founder and CEO said in a series of tweets on Thursday that he does not have enough liquidity to cover withdrawals and that he is more in debt than he thought.

1) I’m sorry. This is the biggest thing.

I fucked up and I should have done better.

– SBF (@SBF_FTX) November 10, 2022

The latest cryptocurrency crisis has prompted renewed calls for stricter regulation. White House Press Secretary Karine Jean-Pierre said the FTX developments “highlight why prudent regulation of cryptocurrencies is really needed. The White House, along with relevant agencies, will once again closely monitor the situation as it develops.” .

The collapse of the third largest cryptocurrency exchange is likely to cause further upheaval across the cryptocurrency world, analysts say, meaning Thursday’s rally could be temporary.

“The dissolution of FTX, as well as its confidence shock in the system, will push cryptocurrency prices further down leading to” a new cascade of margin calls, “analysts at JP Morgan said in a note to investors. similar to the selloff after the collapse of the stable coin Terra earlier this year, where prices continued to decline weeks after its bankruptcy.

“This deleveraging is likely to last for at least a few weeks unless a bailout for Alameda Research and FTX is quickly agreed,” JP Morgan analysts wrote.

The cryptocurrency industry is waiting to see what other companies will be affected by the collapse of FTX. Venture capital fund Sequoia Capital said Thursday that it is devaluing its nearly $ 215 million total investment in FTX.

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