The fallout from the collapse of the giant FTX has triggered a far-reaching domino effect: the company has seduced scores of celebrities to endorse the now bankrupt platform, and financial contagion is spreading across the vast ecosystem of cryptocurrencies and digital assets.
On Wednesday (16), the lending arm of cryptocurrency exchange Genesis suspended redemptions and new loan requests, following an “abnormal” number of withdrawal requests that exceeded its current liquidity, citing market turmoil due to the collapse. from FTX.
Genesis said it was working with advisors “to explore all possible options”, adding it would release a plan for its credit business next week. “We are working around the clock to identify the best solutions for the lending business, including, among other things, finding a new source of liquidity,” the company said.
Genesis’ lending arm had about $2.8 billion in active loans in the third quarter, according to its website.
The suspension comes at a time when the entire crypto industry is on edge following the sudden collapse of FTX exchange and crypto hedge fund Alameda Research, both companies owned by Sam Bankman-Fried and which filed for bankruptcy late last week.
“In the world of cryptocurrencies, the minute you hear a company announce ‘we are temporarily suspending withdrawals’ – jeez,” said Daniel Roberts, senior editor at Decrypt Media, a crypto news outlet. “You kind of put them on their deathbed. It’s not common for someone to say ‘we’re suspending withdrawals’ and then say, ‘all right, withdrawals are free, we’re fine’”.
But this “deathbed” is not limited to Genesis.
Shortly after the company suspended withdrawals, Gemini, the cryptocurrency exchange founded by Tyler and Cameron Winklevoss and which partners with Genesis, warned customers that redemptions from its “Earn” program would be delayed. Gemini said it was working with Genesis to help customers withdraw funds from the program, which allowed customers to earn interest on crypto holdings.
No other Gemini products or services were affected, the company said.
Meanwhile, another major player in the crypto world, BlockFi, suspended withdrawals last week following the sudden crash of FTX. On Tuesday (15), The Wall Street Journal reported that BlockFi was preparing for a possible bankruptcy filing.
It is clear that the major players in the industry are racing to distinguish themselves from FTX and other companies that failed last year as token prices plummeted.
One of them is Brian Armstrong, CEO of Coinbase, who on Wednesday (16) told Julia Chatterly of CNN that while the fallout is hurting the industry right now, in the end it could be a good thing for companies like his.
“Cryptoassets are not going anywhere,” he said in an interview that will air on Thursday (17), on the First Move program. “One bad player doesn’t undermine the whole thing – just as Bernie Madoff didn’t make us question the whole traditional financial system.”
Lawsuit names Tom Brady, Gisele Bundchen and others
And the legal headaches for Bankman-Fried, the founder of FTX who resigned as CEO last week, are just beginning.
On Wednesday, an FTX investor filed a lawsuit against Bankman-Fried, as well as several celebrities who have endorsed the platform, including Tom Brady, Gisele Bündchen and Steph Curry. “The misleading FTX platform, maintained by the FTX entities, was truly a house of cards,” the proposed class action lawsuit stated.
Adam Moskowitz and David Boies, two heavyweight attorneys, filed the lawsuit on behalf of an FTX client, Edwin Garrison.
Moskowitz, a Florida attorney, is also behind a class-action lawsuit against crypto lender Voyager Digital, which also filed for bankruptcy earlier this year. Boies is perhaps best known for representing Vice President Al Gore in the Bush v. Gore case in the year 2000.
In an email to the CNN Business Moskowitz claimed that FTX was “a gigantic Ponzi scheme, even bigger than the Madoff scheme”.
“FTX was a genius in public relations and marketing, and knew that … it could only succeed with the help and promotion of the world’s most famous, respected and loved celebrities and influencers,” wrote Moskowitz.
Representatives for Brady, Bundchen and Curry did not immediately respond to requests for comment from the CNN Business 🇧🇷
Lawyers not involved in the case told the CNN Business that a key issue in the process will be whether crypto assets can be treated as securities under the law. The Securities and Exchange Commission (SEC, the US CVM) said yes, the industry strongly disagrees.
In its heyday, FTX received support from numerous athletes and celebrities. Brady and Bündchen, in particular, took on an undisclosed shareholding in the brokerage in 2021.
It is not clear from the lawsuit what economic relationship the celebrities had with FTX, said Charles Whitehead, a professor at Cornell Law School who is not involved in the case. But promoting crypto has different implications than endorsing beverages or sportswear.
“Selling an asset that is a financial instrument… is not the same as selling a shoe,” warned Whitehead. “There are anti-fraud and consumer protection rules for selling bad sneakers.” “There are even more restrictive rules when it comes to selling financial assets.”
He added: “all these celebrities who are doing this type of sponsorship should stop and hire a securities lawyer.”
Growing demands for regulation
In recent days, regulators, lawmakers and even crypto industry leaders have publicly called on Congress to take action in the cryptocurrency market, which is poorly regulated and lacks clear guidelines for traders.
“The recent collapse of a giant cryptocurrency exchange and the impact it has on cryptocurrency holders and investors demonstrates the need for more effective oversight of cryptocurrency markets,” said US Treasury Secretary Janet Yellen on Wednesday. -Friday (16). “Where existing regulations apply, they must be strictly implemented so that there are the same protections and principles for cryptographic assets and services.”
*Jennifer Korn of CNN Business contributed to this story
Source: CNN Brasil
A journalist with over 7 years of experience in the news industry, currently working at World Stock Market as an author for the Entertainment section and also contributing to the Economics or finance section on a part-time basis. Has a passion for Entertainment and fashion topics, and has put in a lot of research and effort to provide accurate information to readers.
