Collapsed Crypto Exchange FTX Hit by Malicious Transactions


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HONG KONG/SINGAPORE/LONDON — Crypto exchange FTX was thrown into further chaos on Saturday when the company said it detected unauthorized transactions and analysts reported that millions of dollars in assets had been moved from the platform under “suspicious circumstances”.

FTX filed for bankruptcy on Friday after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance scrapped a proposed bailout deal.

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At least $1 billion in client funds disappeared from the platform, sources told Reuters on Friday. The company’s founder, Sam Bankman-Fried, had transferred $10 billion in client funds to his trading company, Alameda Research, the sources said.

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New issues surfaced on Saturday when FTX’s US General Counsel Ryne Miller said in a tweet that the company’s digital assets were being moved to what’s called cold storage “to mitigate damage during observation of unauthorized transactions”.

Cold storage refers to crypto wallets that are not connected to the internet to protect against hackers.

Blockchain analytics firm Elliptic said around $473 million worth of cryptoassets were “withdrawn from FTX wallets under suspicious circumstances early this morning,” but could not confirm that the chips had been stolen.

FTX’s dramatic fall from favor saw Bankman-Fried, 30, known for his shorts and t-shirts, go from poster child of crypto hits to protagonist of the most publicized crash in the world. ‘industry.

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The collapse shocked investors and prompted fresh calls to regulate the crypto-asset sector, which has seen losses mount so far this year as cryptocurrency prices crash.

“Things will continue to simmer after the FTX crash,” said Alan Wong, COO of Hong Kong Digital Asset Exchange.

“With an $8 billion gap between liabilities and assets, when FTX is insolvent, it will trigger a domino effect, leading to a series of FTX-linked investors going bankrupt or being forced to sell assets. In an illiquid bear market, the event will lead to another round of cryptocurrency declines, as well as a leverage sell-off.

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Since its inception in 2019, FTX has raised over $2 billion from top investors including Sequoia, SoftBank, BlackRock, and Temasek. In January, FTX had raised $400 million from investors at a valuation of $32 billion.

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SoftBank and Sequoia Capital said they were reducing their investments in FTX to zero.

Cryptocurrency exchange Coinbase Global Inc will also reverse the investment its venture capital arm made in FTX in 2021, according to a person familiar with the matter.

Bitcoin fell below $16,000 for the first time since 2020 after Binance abandoned its bailout deal on Wednesday.

On Saturday, it was trading around $16,831, down more than 75% from an all-time high of $69,000 in November last year.

FTX’s FTT token has fallen around 91% this week. Shares of cryptocurrency and blockchain-related companies also fell.

“We believe cryptocurrency markets remain too small and siloed to cause contagion in financial markets, with a market capitalization of $890 billion compared to US stocks’ $41 trillion,” wrote Citi analysts.

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“Over four years, FTX has raised $1.8 billion from venture capital funds and pension funds. This is the main way financial markets could suffer, as it may have other minor implications for portfolio shocks in a volatile macro regime.

In its bankruptcy filing, FTX Trading said it had between $10 billion and $50 billion in assets, $10 billion to $50 billion in liabilities, and more than 100,000 creditors. John J. Ray III, a restructuring expert, was named to take over as CEO.

The US securities regulator is investigating FTX.com’s handling of client funds amid a liquidity crisis, as well as its crypto lending activities, a source with knowledge of the investigation said.

Hedge fund Galois Capital had half of its assets trapped on FTX, the Financial Times reported on Saturday, citing a letter from co-founder Kevin Zhou to investors and estimating the amount at around $100 million.

(Additional reporting by Angus Berwick; Editing by Pravin Char)

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