As regulators scrutinize FTX, competing exchanges try to reassure investors

As regulators scrutinize FTX, competing exchanges try to reassure investors

  • Crypto.com CEO says he will release proof of reserves
  • Bitcoin stable around $16,700
  • Binance CEO Plans “Industry Recovery Fund”
  • Minor exchange AAX halts withdrawals

SINGAPORE/LONDON, Nov 14 (Reuters) – Bitcoin and other cryptocurrencies remained under pressure on Monday after cryptocurrency exchange FTX collapsed last week, while competing exchanges sought to reassure nervous investors of their own stability.

Kris Marszalek, CEO of Singapore-based crypto exchange Crypto.com, dismissed suggestions that could get in trouble, saying in a YouTube livestream address the platform would prove all naysayers wrong.

The AMA (ask-me-anything) session came after investors took to Twitter over the weekend to announce a $400 million transfer of Ether tokens to the Gate.io exchange on Oct. 21 in to ask question.

Marszalek had tweeted on Sunday to say the ether had been reclaimed and returned to the exchange, but The Wall Street Journal reported that withdrawals at Crypto.com surged over the weekend.

Audited evidence of the exchange’s reserves report will be released within weeks, Marszalek said Monday, adding that the exchange has not engaged in “irresponsible lending products.”

Crypto.com is among the top 10 trading exchanges worldwide, but is smaller than FTX and market leader Binance. It made headlines in 2021 when it signed a $700 million deal to rebrand Los Angeles’ Staples Center to Crypto.com Arena, and got actor Matt Damon to promote the platform.

FTX filed for bankruptcy on Friday, in one of the most high-profile crypto explosions, after traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a planned bailout deal.

It was plunged into even more chaos on Saturday after it said it had detected unauthorized access, and analysts said hundreds of millions of dollars in assets had been moved from the platform in “suspicious circumstances”.

New FTX CEO John J. Ray III said Saturday that the company is working with law enforcement and regulators to mitigate the issue and is making “every effort” to secure assets. Former CEO and FTX founder Sam Bankman-Fried previously told Reuters that some of the transfers out of FTX were due to “confusing internal labeling”.

Another crypto exchange, Kraken, said on Twitter Sunday it had frozen the accounts of FTX, affiliated crypto trading firm Alameda Research, and their executives.

“We have been actively monitoring recent developments with the FTX estate, are in contact with law enforcement and have frozen Kraken account access to certain funds which we suspect are linked to ‘fraud, negligence or wrongdoing’ in the related to FTX,” a spokesman for Kraken said in a statement.

Bitcoin slipped back below $16,000 early Monday before recovering to trade at $16,774, up 2.8% on the day. However, with losses 18% so far in November, it still faces its biggest monthly percentage drop since June, when the fallout from the failure of stablecoin TerraUSD rocked markets.

FTX’s token was worth just $1.3, down 94% in November, while Crypto.com’s Cronos token was halved to $0.06 over the past week, according to pricing site Coingecko

NERVES OF INVESTORS

FTX’s collapse has investors on edge as unconfirmed rumors circulate even as exchanges release details of their reserves and promise more disclosures.

“One of the theories floating around is that exchanges are moving crypto to shore up their balance sheets and make everything look good even when it’s not looking good,” said Zennon Kapron, founder of fintech consultancy Kapronasia.

“It’s like someone showed someone a bank statement at 2pm this afternoon that you had $100 in your account. At 1 p.m. it was maybe $1 and someone just sent you $99 and by 4 p.m. you’re going to send it back… A snapshot tells us very little about the actual state of an exchange.”

Separately, smaller Asia-based exchange AAX halted withdrawals over the weekend, citing bugs at an unnamed third-party partner during a planned system update.

AAX said it hopes to resume regular operations for all users in 7 to 10 days, but noted in a note to customers: “Given the bankruptcy of one of the biggest players in our industry over the past week, crypto users are rightly concerned about the operation and financial stability of centralized exchanges for digital assets”.

Changpeng Zhao, chief executive of Binance, the world’s largest crypto exchange, tweeted that he will seek to set up an industry recovery fund to help projects that are “otherwise strong but facing a liquidity crisis,” adding that more details will follow would.

Binance signed a non-binding letter of intent to buy FTX’s non-US assets last week, but later walked out of the deal and hastened bankruptcy.

Zhao has since warned of a “cascading” crypto crisis.

Meanwhile, regulators continued to circle FTX, which itself had been a white knight investor in failed crypto projects over the summer.

The Bahamas Securities Commission and financial investigators are investigating possible wrongdoing related to the collapse of FTX, the Royal Bahamas Police Force said on Sunday.

Visa Inc (VN), the world’s largest payment processor, announced on Sunday that it is terminating its global credit card agreements with FTX.

Additional reporting by Xinghui Kok in Singapore and Elizabeth Howcroft in London; Editing by Sam Holmes, Kirsten Donovan

Our standards: The Thomson Reuters Trust Principles.

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