As regulators scrutinise FTX, rival exchanges try to reassure investors

[November 14, 2022]  By Vidya Ranganathan and Alun John

SINGAPORE/LONDON (Reuters) -Bitcoin and other cryptocurrencies remained under pressure on Monday following last week's collapse of crypto exchange FTX while rival exchanges sought to reassure jittery investors of their own stability.

Kris Marszalek, CEO of Singapore-based crypto exchange Crypto.com, refuted suggestions it could be 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 question a transfer of $400 million worth of ether tokens to the Gate.io exchange on Oct. 21.

Marszalek had tweeted on Sunday to say the ether was recovered and returned to the exchange, but the Wall Street Journal reported that withdrawals at Crypto.com rose over the weekend.

An audited proof of the exchange's reserves report will be published within weeks, Marszalek said on Monday, adding that the exchange did not engage in any "irresponsible lending products".
 

Crypto.com is among the top 10 exchanges by turnover globally, but smaller than FTX and market leader Binance. It made headlines in 2021 by signing a $700 million deal to rename the Staples Center in Los Angeles as the Crypto.com Arena, and getting actor Matt Damon to promote the platform.

FTX filed for bankruptcy on Friday, one of the highest profile crypto blowups, after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.

It was engulfed in more chaos on Saturday after saying it had detected unauthorised access and analysts said hundreds of millions of dollars of assets had been moved from the platform in "suspicious circumstances".

New FTX Chief Executive John J. Ray III said on Saturday that the company was working with law enforcement and regulators to mitigate the problem, and was making "every effort" to secure assets. Former CEO and FTX founder Sam Bankman-Fried has previously told Reuters some of the transfers out of FTX were a result of "confusing internal labelling".

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

"We have actively monitored recent developments with the FTX estate, are in contact with law enforcement, and have frozen Kraken account access to certain funds we suspect to be associated with 'fraud, negligence or misconduct' related to FTX," a spokesperson for Kraken said in a statement.

Bitcoin slid back below $16,000 early on Monday before recovering to trade at $16,774, up 2.8% on the day. Still, with losses so far in November at 18%, it remains set for its biggest monthly fall in percentage terms since June when the fallout from the failure of stablecoin TerraUSD roiled markets.

The logo of FTX is seen at the entrance of the FTX Arena in Miami, Florida, U.S., November 12, 2022. REUTERS/Marco Bello

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

INVESTOR NERVES

FTX's collapse has left investors nervous as unverified rumours swirl, even as exchanges publish details of their reserves and promise further disclosures.

"One of the theories floating around is that the exchanges are moving crypto around to shore up their balances and make everything look good even when it's anything but," said Zennon Kapron, founder of fintech consultancy Kapronasia.

"It's like someone showing someone a bank statement that you had $100 in your account at 2pm this afternoon. At 1pm it might have been $1 and someone just transferred you $99, and at 4pm, you're going to send it back...A snapshot tells us very little about the actual health of an exchange."

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

AAX said it hoped to resume regular operations for all users in 7-10 days, but in a note to customers noted that: "In light of the insolvency of one of our industry’s largest players last week, crypto users are rightfully concerned about the operational and financial stability of centralized digital asset exchanges".

Changpeng Zhao, chief executive of Binance, the world's largest crypto exchange, tweeted that he would look to create an industry recovery fund to help projects that were "otherwise strong but in a liquidity crisis", adding that more details would follow.

Binance, last week, signed a non-binding letter of intent to buy FTX’s non-U.S. assets but later abandoned the deal, precipitating its bankruptcy.

Zhao has since warned of a "cascading" crypto crisis.

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

The Bahamas securities regulator and financial investigators are investigating potential misconduct over FTX's collapse, the Royal Bahamas Police Force said on Sunday.

Visa Inc, the world's largest payments processor, said on Sunday it was severing 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)

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