Regulators are circling FTX as rival exchanges try to appease investors

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  • The US Department of Justice, SEC and CFTC are investigating FTX, sources say
  • Fed’s Brainard: Crypto should fall under traditional financial rules
  • Crypto.com CEO says it will publish proof of reserves
  • Bitcoin is stabilizing around $16,590

NEW YORK, Nov 14 (Reuters) – Bitcoin and other cryptocurrencies came under pressure on Monday following the spectacular collapse of crypto exchange FTX last week, as regulators open probes and rival exchanges tried to reassure nervous investors about their own stability.

The implosion of FTX, once a crypto industry darling with a $32 billion valuation in January, has prompted investigations by the US Department of Justice, Securities and Exchange Commission and Commodity Futures Trading Commission, a source with knowledge said. of the investigations.

The SEC’s investigation also focuses on FTX managers, their knowledge of handling client money and possible violations of securities laws, a second source familiar with the investigation said.

While the crypto industry has touted digital assets as fundamentally different from traditional financial assets, the industry has proven to be susceptible to the same risks and should be subject to the same rules, Federal Reserve Vice Chairman Lael Brainard said Monday.

“I think it reinforces the need to ensure that crypto finance, as it is no different from traditional finance in terms of the risks it exposes, should be regulated,” she said.

FTX has filed for bankruptcy on Friday in one of the most high-profile crypto bursts after frenzied traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed bailout deal.

Bitcoin, which hit an all-time high of $69,000 a year ago, fell back below $16,000 early Monday before recovering to trade at $16,590, up 1.72% at 2pm EST (1900 GMT). Dropping about 18% in November, bitcoin is poised for its biggest monthly percentage decline since June, when fallout from the failure of stablecoin TerraUSD rocked markets.

FTX’s token was worth just $1.30, down 94% in November, while Crypto.com’s Cronos token has halved to 6 cents over the past week, according to pricing site Coingecko.

CASCADER EFFECT

The swift demise of FTX, once a white knight for struggling crypto companies, has sent shockwaves through the crypto industry, which is bracing for further fallout.

LedgerX LLC, a subsidiary of FTX, on Monday formally withdrew its request of last December with the US Commodity Futures Trading Commission to allow it to offer products that are not fully covered.

Cryptocurrency lender BlockFi, which has signed a deal with FTX to provide it with a $400 million revolving credit facility with an option to buy it for up to $240 million, said Monday it significant exposure to FTX.

Other crypto exchanges have published details of their reserves and promise further disclosures in an effort to calm investor nerves amid unverified rumors.

The FTX logo is seen at the entrance to the FTX Arena in Miami, Florida, US, November 12, 2022. REUTERS/Marco Bello

Kris Marszalek, CEO of Singapore-based crypto exchange Crypto.com, who made headlines in 2021 with a $700 million deal to rebrand Los Angeles’ Staples Center as Crypto.com Arena and whose platform was promoted in a commercial featuring actor Matt Damon, refuted suggestions that it was in trouble.

In an “ask-me-anything” YouTube livestream on Monday, Marszalek said the exchange always maintained reserves to match any coin customers held on its platform and verified proof of Crypto.com’s reserves will be released in a few weeks. published.

The move came after investors took to Twitter over the weekend to question a transfer of $400 million worth of ether tokens to the Gate.io exchange on Oct. 21.

Marszalek tweeted on Sunday that ether had been recovered and returned to the exchange, but the Wall Street Journal reported that withdrawals at Crypto.com had spiked over the weekend.

A spokesperson for Crypto.com did not respond to a request for comment on whether the outflow from the platform continued Monday.

Crypto.com ranks among the top 10 such exchanges globally by revenue, but is smaller than FTX and market leader Binance.

Another crypto exchange, Kraken, said on Twitter on Sunday that it froze the accounts of FTX, crypto trading company affiliate Alameda Research, and their executives.

“We have been actively monitoring recent developments with the FTX estate, are in contact with law enforcement and have blocked Kraken account access to certain funds that we suspect may be related to ‘fraud, negligence or misconduct’ related to FTX said a Kraken spokesperson. .

Separately, the smaller Asia-based exchange AAX halted withdrawals over the weekend, citing errors at an unnamed third-party partner during a planned system update.

AAX said it hoped to resume regular operations in seven to 10 days, but in a note for customers said, “In light of the insolvency of one of the largest players in our industry last week, crypto users are rightfully concerned about the operational and financial stability of centralized digital asset exchanges.”

Changpeng Zhao, CEO of Binance, the world’s largest crypto exchange, said he would look to create a recovery fund for the industry to help projects that were “otherwise strong but in liquidity crunch”.

Binance last week signed a non-binding letter of intent to buy FTX’s non-US assets, but later backed out of the deal, putting it out of business. Zhao has since warned of a “cascading” crypto crisis.

Reporting by John McCrank in New York, Vidya Ranganathan in Singapore and Alun John in London Additional reporting by Chris Prentice in New York, Xinghui Kok in Singapore and Elizabeth Howcroft in London Edited by Kirsten Donovan, Jonathan Oatis and Matthew Lewis

Our standards: The Thomson Reuters Principles of Trust.

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