Collapsed crypto exchange FTX hit by 'unauthorised transactions'
Millions of dollars worth of crypto assets were moved out of FTX wallets in "suspicious circumstances", says blockchain analytics firm Elliptic.
HONG KONG: Collapsed crypto exchange FTX was engulfed in further chaos on Saturday (Nov 12) when the company said it had detected unauthorised transactions and analysts flagged that millions of dollars of assets had been moved from the platform in "suspicious circumstances".
FTX filed for bankruptcy on Friday after traders rushed to withdraw US$6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.
At least US$1 billion of customer funds have vanished from the platform, sources told Reuters on Friday. The firm's founder Sam Bankman-Fried had transferred US$10 billion of customer funds to his trading company, Alameda Research, the sources said.
New problems emerged on Saturday when FTX's US general counsel Ryne Miller said in a tweet that the firm's digital assets were being moved into so-called cold storage "to mitigate damage upon observing unauthorised transactions".
Cold storage refers to crypto wallets that are not connected to the Internet to guard against hackers.
Blockchain analytics firm Elliptic said that around US$473 million worth of crypto assets were "moved out of FTX wallets in suspicious circumstances early this morning", but that it could not confirm that the tokens had been stolen.
FTX's dramatic fall from grace has seen 30-year-old Bankman-Fried, known for his shorts and t-shirt attire, morph from being the poster child of crypto's successes to the protagonist of the industry's highest-profile crash.
The collapse shocked investors and prompted fresh calls to regulate the crypto-asset sector, which has seen losses stack up so far this year as cryptocurrency prices collapsed.
"Things will continue to simmer after the FTX crash," said Alan Wong, operations manager of Hong Kong Digital Asset Exchange.
"With a gap of US$8 billion between liabilities and assets, when FTX is insolvent, it will trigger a domino effect, which will lead to a series of investors related to FTX going bankrupt or being forced to sell assets. In an illiquid bear market, the event will lead to a new round of cryptocurrency declines, as well as a liquidation of leverage."
Since its founding in 2019, FTX had raised more than US$2 billion from top investors including Sequoia, SoftBank, BlackRock and Temasek. In January, FTX had raised US$400 million from investors at a US$32 billion valuation.
SoftBank and Sequoia Capital said they were marking their investments in FTX down to zero.
Cryptocurrency exchange Coinbase Global Inc will also write off the investment its ventures arm made in FTX in 2021, according to a person familiar with the matter.
Bitcoin fell below US$16,000 for the first time since 2020 after Binance abandoned its rescue deal on Wednesday.
On Saturday, it was trading around US$16,831, down by more than 75 per cent from the all-time high of US$69,000 in November last year.
FTX's token FTT plunged by around 91 per cent this week. Shares of cryptocurrency and blockchain-related firms have also declined.
"We believe cryptocurrency markets remain too small and too siloed to cause contagion in financial markets, with a US$890 billion market cap in comparison to US equity’s US$41 trillion," Citi analysts wrote.
"Over four years, FTX raised US$1.8 billion from venture capital and pension funds. This is the primary way financial markets could suffer, as it may have further minor implications for portfolio shocks in a volatile macro regime."
In its bankruptcy petition, FTX Trading said it has US$10 billion to US$50 billion in assets, US$10 billion to US$50 billion in liabilities, and more than 100,000 creditors. John J Ray III, a restructuring expert, was appointed to take over as CEO.
The US securities regulator is investigating FTX.com's handling of customer funds amid a liquidity crunch, as well its crypto-lending activities, a source with knowledge of the inquiry said.
Hedge fund Galois Capital had half its assets trapped on FTX, the Financial Times reported on Saturday, citing a letter from co-founder Kevin Zhou to investors and estimating the amount to be around US$100 million.