Cryptocurrency Crisis Continues; see latest events after FTX collapse

The aftershocks of the trillion-dollar earthquake that hit the cryptocurrency industry last week continued to be felt on Monday.

Digital currency prices fell again as the crisis involving the market deepened over the weekend.

Bitcoin, the world’s largest cryptocurrency, has plummeted about 65% so far this year. The asset was trading around $16,500 on Monday, according to CoinDesk, and analysts believe it could drop below $10,000 in the coming days.

Meanwhile, the second most valuable cryptocurrency ethereum is not faring much better. It was trading at $1,231.53 on Monday, having sunk more than 20% last week, CoinDesk data showed.

The drop comes as investors continue to grapple with the impressive implosion of the FTX Group, one of the biggest and most powerful players in the industry.

Some industry experts said the company’s downfall triggered a “Lehman moment”, referring to the investment bank’s 2008 collapse that sent shockwaves across the world.

The episode not only destroyed confidence in the cryptocurrency industry, it will also encourage global regulators to tighten the screws. Some of the biggest names in the industry have said they will welcome scrutiny if it helps restore faith in the industry once again.

There is “a lot of risk,” said Changpeng Zhao, who runs cryptocurrency platform Binance. “We saw last week that things got crazy in the industry, so we need some regulations, we need to get this right,” she added.

At a conference in Indonesia last week, the head of Binance, known as CZ, said that comparing the current cryptocurrency turmoil to the 2008 global financial crisis is “probably an accurate analogy.”

Zhao was a key player in the events surrounding the fall of FTX. Binance reached an interim redemption agreement with FTX early last week, but that transaction fell apart.

FTX continued its downward spiral over the weekend after filing for bankruptcy on Friday. And another big name in the industry has admitted mismanagement of funds, scaring investors even further.

Here’s how things have unfolded over the past few days, showing that the crisis is just beginning.

Criminal investigation in the Bahamas

FTX moved its headquarters from Hong Kong to the Bahamas last year, with former CEO Sam Bankman-Fried hailing it as “one of the few places to set up a comprehensive framework for cryptocurrencies” at the time.

On Sunday, authorities in the Bahamas said they were investigating possible criminal misconduct surrounding the company’s implosion.

“In light of the collapse of FTX globally and the interim liquidation of FTX Digital Markets Ltd., a team of financial investigators from the Financial Crimes Investigation Division is working closely with the Securities and Exchange Commission of The Bahamas to investigate whether any misconduct has occurred. criminal conduct,” the Bahamas Police Force said in a statement.

It is unclear, however, which specific aspect of the rapid collapse of FTX authorities the corporation is investigating.

Bankman-Fried, the 30-year-old founder of the exchange, was one of the faces of the cryptocurrency industry, amassing a fortune totaling $25 billion that has since disappeared. He was seen as the white knight of the crypto world, previously stepping in to rescue struggling companies following the collapse of the TerraUSD stablecoin in May.

FTX, backed by elite investors like BlackRock and Sequoia Capital, has quickly become one of the largest cryptocurrency exchanges in the world. Its collapse was preceded by the decision to borrow billions of dollars in client assets to fund risky gambles by Alameda, FTX’s crypto hedge fund, the Wall Street Journal reported on Thursday.

A possible cyber attack

The Bahamas investigation came a day after the bankrupt FTX said it was launching an investigation of its own.

On Saturday, FTX said it was investigating whether the crypto assets were stolen and has since moved all of its digital assets offline. Crypto risk management firm Elliptic said that while the theft was unconfirmed, $473 million worth of crypto assets was apparently stolen from FTX.

In a tweet earlier Saturday, FTX General Counsel Ryne Miller said the company has “initiated precautionary measures” and moved all of its digital assets to cold storage. The process was “accelerated” Friday night “to mitigate damage from observing unauthorized transactions,” Miller said in a tweet.

Miller said Friday that FTX was “investigating abnormalities” regarding movements in cryptocurrency wallets “related to the consolidation of FTX balances on exchanges.” The facts are still unclear and the company will share more information as soon as possible, he added.

Accidental Transfers and Binance Notice

As scrutiny from the big players in the cryptocurrency world mounts, another major mishap alarmed investors over the weekend. Singapore-based Crypto.com admitted to accidentally sending over $400 million worth of Ethereum to the wrong account.

Its CEO, Kris Marszalek, said on Twitter on Sunday that the transfer of 320,000 ETH was made three weeks ago to a corporate account on competing exchange Gate.io, rather than one of its offline, or “cold” wallets.

And although funds have been recovered, users are withdrawing from the platform, fearing the same outcome as FTX.

“We have since strengthened our process and systems to better manage these internal transfers,” Marszalek tweeted on Sunday. The platform’s native token is down more than 20% in the last 24 hours, according to CoinDesk on Monday.

At the conference in Bali, Binance chief Zhao signaled that regulating the industry will not be easy.

The “natural response of authorities is to borrow regulations from traditional banking systems, but cryptocurrency exchanges operate very, very differently than banks,” he said on Monday.

“It is very normal for a bank to move user assets into investments and try to get returns,” he explained. If a cryptocurrency exchange operates this way, it is “almost guaranteed to go down,” he said, adding that the industry collectively has a role to play in protecting consumers.

“Regulators have a role, but none can protect a bad player,” he said.

*Matt Egan, Ramishah Maruf, and Allison Morrow contributed to this text.