The Bahamas securities regulator has frozen the assets of the Bahamas subsidiary of FTX, as the world’s second largest cryptocurrency exchange struggles for survival.
The Securities Commission of the Bahamas said on Thursday it had frozen the assets of FTX Digital Markets and related parties, as well appointing a liquidator for the unit.
“The powers of the directors of FDM have been suspended and no assets of FDM, client assets or trust assets held by FDM, can be transferred, assigned or otherwise dealt with, without the written approval of the provisional liquidator,” the commission said.
The commission added in its statement that it had noted recent reports that FTX customers’ assets were mishandled, mismanaged or transferred to Alameda Research, the crypto hedge fund owned by FTX’s founder, Sam Bankman-Fried.
“Based on the commission’s information, any such actions would have been contrary to normal governance, without client consent and potentially unlawful,” it said.
The move came as Bankman-Fried scrambled to find funds to plug a financial hole in the Bahamas-based exchange that could be as deep as $8bn (£6.8bn), according to multiple reports, as customers rush for the exit.
On Friday, Changpeng Zhao, the founder of FTX’s rival Binance, warned the crypto market faced a 2008-style crisis with more failures to come. He told a conference in Indonesia that the global financial crisis was “probably an accurate analogy” to this week’s events, the Financial Times reported.
In the US, the Department of Justice and the Securities and Exchange Commission are reportedly examining FTX to determine whether any criminal activity or securities offences have been committed. The Australian Financial Review reported on Friday that FTX’s Australian arm had been put into administration, while FTX’s US platform – separate from FTX’s international exchange – has warned trading may be halted in “a few days”.
On Thursday, Bankman-Fried apologised, saying he had “fucked up” in his calculations and in his communications during the crisis.
BlockFi, a crypto lender, said on Friday morning it was pausing customer withdrawals after the FTX situation. FTX had bailed out BlockFi in June with a $250m loan, a week after having loaned almost $500m to the struggling crypto broker Voyager Digital. BlockFi said it was “not able to operate business as usual” given the situation.
— BlockFi (@BlockFi) November 11, 2022
The FTX crisis was triggered last week by reports that the balance sheet of Alameda was loaded with billions of dollars worth of FTT tokens, implying that any volatility in the token’s price could endanger Bankman-Fried’s empire.
FTX customers withdrew $6bn in the 72 hours before Tuesday morning, Reuters reported, citing a message to staff at FTX, when the exchange was forced to block further redemptions in an effort to remain solvent. It has yet to restart withdrawals, is blocking new account signups and advising existing customers against making deposits with FTX.
The Alameda reports became a crisis for FTX when Binance, the largest cryptocurrency exchange, announced on Sunday it would sell its holdings – about $500m worth – in FTT, citing “recent revelations”. The value of FTT subsequently fell far below the $22 floor that FTX had committed to support, and customers then triggered the crypto equivalent of a bank run by attempting to withdraw their funds faster than the exchange could process them.
Bitcoin, the cornerstone crypto asset, fell 2.6% on Friday to about $17,340, having jumped on Thursday when markets rallied after US inflation fell more than expected.
“Confidence is gone on day one of this fallout and there is no sight of it coming back yet,” said Kami Zeng, the head of research at Fore Elite Capital Management, a Hong Kong-based crypto fund manager.
The credit ratings firm Standard & Poor’s said on Friday it expected more crypto industry collapses. “This week’s events amplify an already significant fall in crypto prices that started earlier this year and will likely accelerate collateral calls and liquidations. This could lead to more crypto players defaulting,” S&P global ratings said.
