Aftershocks from Last Week’s Massive Trillion-Dollar Crypto Industry Earthquake Continued to Reverberate In Monday.
Digital currency prices fell again as the crisis engulfing the market deepened over the weekend. Bitcoin, the largest cryptocurrency in the world, has fallen around 65% so far this year. It was trading at around $16,500 on Monday, according to CoinDesk. Analysts believe it could fall below $10,000.
Ether, the second most valuable cryptocurrency in the world, does not fare much better. It was trading at around $1,230 on Monday, after falling more than 20% over the past week, according to data from CoinDesk.
The plunge comes as investors continue to battle the stunning implosion of FTX, one of the biggest and strongest players in the industry.
Some industry insiders said the company’s downfall sparked a “Lehman moment”, referring to the 2008 collapse of the investment bank that sent shockwaves around the world.
The episode not only destroyed trust in the crypto industry, but will also encourage global regulators to tighten the screws. Some of the biggest names in the industry have said they would welcome the scrutiny, if it helps restore confidence in the industry.
There are “a lot of risks,” said Changpeng Zhao, who runs Binance, the largest crypto exchange. “We saw last week that things are going crazy in the industry so we need regulations, we need to do it right,” he added.
CZ, as he is known, was speaking at a conference in Indonesia on Monday. He said last week that comparing the current crypto turmoil to the 2008 global financial crisis is “probably an exact analogy.”
Binance had reached a tentative bailout deal with FTX earlier the last week, but that transaction failed almost immediately.
FTX continued its downward spiral after filing for bankruptcy on Friday. Another big name in the industry also admitted to mismanaging the funds, further scaring investors.
Here’s how things have unfolded over the past few days, showing that the crisis has only just begun.
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 have a comprehensive crypto framework in place” at the time.
Bahamian authorities on Sunday said they were investigating possible criminal misconduct surrounding the company’s implosion.
“In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd., a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate any criminal misconduct,” the Royal said Bahamian police in a statement.
It is unclear what particular aspect of the rapid collapse FTX authorities are investigating.
Bankman-Fried, the 30-year-old stock exchange founder, was one of the faces of the crypto industry, amassing a fortune totaling $25 billion who has since disappeared. He had been considered the white knight of the crypto world, previously stepping in to rescue struggling companies after stablecoin TerraUSD collapsed in May.
FTX, backed by elite investors like BlackRock and Sequoia Capital, has quickly become one of the biggest crypto exchanges in the world. Its collapse was preceded by the decision to lend billions of dollars in assets to clients to fund risky bets by Alameda, the crypto hedge fund of Bankman-Fried, The Wall Street Journal reported Thursday.
The Bahamas investigation came a day after the bankrupt exchange announced it was opening its own investigation.
On Saturday, FTX said it was investigating whether any crypto assets had been stolen. Crypto risk management firm Elliptic said $473 million in crypto assets appears to have been ripped from FTX.
FTX General Counsel Ryne Miller said Saturday that the company “took precautionary measures” on Friday and moved all of its digital assets offline. The process was expedited on Friday night “to mitigate damages when observing unauthorized transactions.”
Miller said FTX is “investigating anomalies” regarding crypto wallet movements “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.
As scrutiny from big players in the crypto world increases, Singapore-based Crypto.com has admitted to accidentally sending over $400 million in ether to the wrong account.
CEO Kris Marszalek said on Sunday that the transfer of 320,000 ETH was made three weeks ago to a corporate account at rival exchange Gate.io, instead of one of its offline wallets or ” cold”.
Although the funds have been recovered, users are withdrawing their funds from the platform, fearing that it will collapse like FTX.
“We have since strengthened our process and systems to better manage these internal transfers,” Marszalek tweeted on Sunday. The platform’s native token has fallen more than 20% in the past 24 hours, according to CoinDesk.
Marszalek said Monday that his company has acted as a “responsible and regulated actor since its inception” and will soon “prove all naysayers … wrong with our actions.”
Crypto.com has 70 million people on its platform globally, and its business model is “completely different” from FTX, he added.
“We have never taken third-party risk, we don’t manage hedge funds, we don’t trade client assets,” he said.
Marszalek said his company will soon release an audited report showing its reservations.
At the Bali conference, Binance boss Zhao signaled that regulating the industry would not be easy.
“The natural response from authorities is to borrow regulations from traditional banking systems … but crypto exchanges operate very, very differently from banks,” he said.
“It’s very, very normal for a bank to move user assets around for investments and try to generate returns,” he explained. If a crypto exchange operates this way, it’s “almost guaranteed to go down,” he said. adding that the industry collectively had a role to play in protecting consumers.
“Regulators have a role… but nothing can protect a bad player,” he said.
— Matt Egan, Ramishah Maruf and Allison Morrow contributed to this report.
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