Regulators circle FTX as rival exchanges try to calm investors

  • US Department of Justice, SEC and CFTC investigating FTX, sources say
  • Fed’s Brainard: Crypto Should Be Subject to Traditional Financial Rules
  • Crypto.com CEO Says He Will Release Proof of Reserves
  • Bitcoin stabilizes around $16,590

NEW YORK, Nov 14 (Reuters) – Bitcoin and other cryptocurrencies were under pressure on Monday after crypto exchange FTX’s dramatic collapse last week as regulators opened up probes and rival exchanges sought to reassure nervous investors of their own stability.

The implosion of FTX, once a crypto industry darling with a $32 billion valuation in January, has spurred investigations by the US Department of Justice, Securities and Exchange Commission and Commodity Futures Trading Commission, said a source with knowledge of the investigations.

The SEC investigation also targets FTX executives, their knowledge of handling client funds and any potential violations of securities laws, said a second source with knowledge of the investigation.

While the crypto industry has presented digital assets as fundamentally different from traditional finance, the sector has proven susceptible to the same risks and should be subject to the same rules, the Federal Reserve Vice Chairman said on Monday. , Lael Brainard.

“It reinforces, I think, this need to ensure that crypto finance, because it is no different from traditional finance in the risks it exposes, has to be under the regulatory perimeter,” he said. she declared.

FTX filed for bankruptcy on Friday in one of crypto’s most publicized explosions after frantic traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance dropped a bailout deal offers.

Bitcoin, which hit a record high of $69,000 a year ago, fell back below $16,000 early Monday before recovering to trade at $16,590, up 1.72% to 14 1:00 p.m. EST (7:00 p.m. GMT). Down around 18% in November, bitcoin is set to see its biggest monthly percentage decline since June, when fallout from the failure of stablecoin TerraUSD rocked markets.

FTX’s token was worth just $1.30, down 94% in November, while Crypto.com’s Cronos token halved last week to 6 cents, according to pricing site Coingecko.

CASCADE EFFECT

The rapid fall of FTX, once a white knight of struggling crypto firms, has sent shockwaves through the crypto industry, which is bracing for further fallout.

LedgerX LLC, a subsidiary of FTX, on Monday officially withdrew its December filing with the U.S. Commodity Futures Trading Commission to allow it to offer products that are not fully collateralized.

Cryptocurrency lender BlockFi, which has signed an agreement with FTX to provide it with a $400 million revolving credit facility with an option to purchase up to $240 million, said Monday it has a significant exposure to FTX.

Other crypto exchanges have released details of their reserves and promised further disclosures in a bid to soothe investors’ nerves amid unverified rumors.

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

Kris Marszalek, managing director of Singapore-based crypto exchange Crypto.com, who made headlines in 2021 with a $700 million deal to rename the Staples Center in Los Angeles to Crypto.com Arena and whose the platform was promoted in an advertisement featuring actor Matt Damon, refuted suggestions that he was in trouble.

In an “ask me anything” YouTube livestream on Monday, Marszalek said the exchange still maintains reserves to match all coin clients held on its platform and that audited proof of Crypto reserves .com would be published in a few weeks.

The move came after investors took to Twitter over the weekend to question a $400 million transfer of ether tokens to the Gate.io exchange on October 21.

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

A spokesperson for Crypto.com did not respond to a request for comment on whether exits from the platform continued on Monday.

Crypto.com is among the top 10 such exchanges by revenue globally, but smaller than FTX and market leader Binance.

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

“We have been actively monitoring recent developments with the FTX domain, are in contact with law enforcement, and have frozen Kraken account access to certain funds that we suspect are associated with ‘fraud, negligence or misconduct’. “linked to FTX,” a Kraken spokesperson said. .

Separately, Asia’s smallest exchange, AAX, halted withdrawals over the weekend, citing failures at an unnamed third-party partner during a planned system update.

AAX said it hopes to resume regular operations in seven to 10 days, but in a note to customers said, “In light of the insolvency of one of the largest players in our industry last week, crypto users are rightly concerned about the operational and financial stability of centralized digital asset exchanges.”

Changpeng Zhao, CEO of Binance, the world’s largest crypto exchange, said he would seek to establish an industry recovery fund to help “otherwise strong but cash-crunched” projects.

Binance signed a non-binding letter of intent last week to buy FTX’s non-US assets, but later abandoned the deal, precipitating its bankruptcy. Zhao has since warned of a “cascading” crypto crisis.

Reporting by John McCrank in New York, Vidya Ranganathan in Singapore and Alun John in London Additional reporting by Chris Prentice in New York, Xinghui Kok in Singapore and Elizabeth Howcroft in London Editing by Kirsten Donovan, Jonathan Oatis and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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