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Collapsed FTX hit by rogue transactions, analysts saw over $600mln outflows

Published 11/12/2022, 01:18 AM
Updated 11/12/2022, 09:20 PM
© Reuters. FILE PHOTO: FTX logo is seen in this illustration taken, November 8, 2022. REUTERS/Dado Ruvic/Illustration//File Photo

By Summer Zhen, Vidya Ranganathan and Elizabeth Howcroft

HONG KONG/SINGAPORE/LONDON (Reuters) - FTX was engulfed in more chaos on Saturday when the crypto exchange said it had detected unauthorized access and analysts said hundreds of millions of dollars of assets had been moved from the platform in "suspicious circumstances".

FTX filed for bankruptcy on Friday, one of the highest profile crypto blowups, after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.

FTX Chief Executive John J. Ray III said on Saturday that the company was working with law enforcement and regulators to mitigate the problem, and was making "every effort to secure all assets, wherever located."

"Among other things, we are in the process of removing trading and withdrawal functionality," he said.

The exchange's dramatic fall from grace has seen its 30-year-old founder Sam Bankman-Fried, known for his shorts and T-shirt attire, morph from being the poster child of crypto's successes to the protagonist of the industry's biggest crash.

Bankman-Fried, who lives in the Bahamas, has also been the subject of speculation about his whereabouts and he denied rumors on Twitter that he had flown to South America. When asked by Reuters whether he had flown to Argentina, he responded in a text message: "Nope". He told Reuters he was in the Bahamas.

The turmoil at FTX has seen at least $1 billion of customer funds vanish from the platform, sources told Reuters on Friday. Bankman-Fried had transferred $10 billion of customer funds to his trading company, Alameda Research, the sources said.

New problems emerged on Saturday when FTX's U.S. general counsel Ryne Miller said in a Twitter post that the firm's digital assets were being moved into so-called cold storage "to mitigate damage upon observing unauthorized transactions."

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

Blockchain analytics firm Nansen said it saw $659 million in outflows from FTX International and FTX U.S. in the last 24 hours.

A separate blockchain analytics firm Elliptic said that around $515 million worth of cryptoassets were "suspected to have been stolen," while $186 million were likely moved into secure storage by FTX.

Crypto exchange Kraken said: "We can confirm our team is aware of the identity of the account associated with the ongoing FTX hack, and we are committed to working with law enforcement to ensure they have everything they need to sufficiently investigate this matter."

FTX was not immediately available for comment about the outflows or Kraken's statement.

In its bankruptcy petition, FTX Trading said it has $10 billion to $50 billion in assets, $10 billion to $50 billion in liabilities, and more than 100,000 creditors. Ray, a restructuring expert, was appointed to take over as CEO.

A document that Bankman-Fried shared with investors on Thursday and was reviewed by Reuters showed FTX had $13.86 billion in liabilities and $14.6 billion in assets. However, only $900 million of those assets were liquid, leading to the cash crunch that ended with the company filing for bankruptcy.

The collapse shocked investors and prompted fresh calls to regulate the cryptoasset sector, which has seen losses stack up this year as cryptocurrency prices collapsed.

"Things will continue to simmer after the FTX crash," said Alan Wong, operations manager of Hong Kong Digital Asset Exchange.

"With a gap of $8 billion between liabilities and assets, when FTX is insolvent, it will trigger a domino effect, which will lead to a series of investors related to FTX going bankrupt or being forced to sell assets."

Crypto market maker Jump said on Twitter late on Saturday that it had an undisclosed exposure to FTX, adding that the firm remains well capitalized.

MARKET FALLOUT

Since its founding in 2019, FTX had raised more than $2 billion from top investors including Sequoia, SoftBank, BlackRock (NYSE:BLK) and Temasek. In January, FTX had raised $400 million from investors at a $32 billion valuation.

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

Cryptocurrency exchange Coinbase (NASDAQ:COIN) Global Inc will also write off the investment its ventures 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 rescue deal for FTX on Wednesday.

On Saturday it was trading around $16,800, down by more than 75% from the all-time high of $69,000 it reached in November last year.

FTX's token FTT plunged by around 91% this week. Shares of cryptocurrency and blockchain-related firms have also declined.

"We believe cryptocurrency markets remain too small and too siloed to cause contagion in financial markets, with an $890 billion market cap in comparison to U.S. equity's $41 trillion," Citi analysts wrote.

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

© Reuters. The logo of FTX is seen in the rooftop of the FTX Arena in Miami, Florida, U.S., November 12, 2022. REUTERS/Marco Bello

The U.S. securities regulator is investigating FTX.com's handling of customer funds, as well its crypto-lending activities, a source with knowledge of the inquiry said.

Hedge fund Galois Capital had half 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 to be around $100 million. Pain in crypto land https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/lbvggrkadvq/chart.png

Latest comments

If I want to buy rat poison I can do it at the local hardware store. I don't have to don't in so-called Crypto exchanges. I guess people never learn. Greed is always winning
if this blockchain technology or so called currency is that useful for the real world why can't they set it's real value in real world. The price of anything is based upon its cost and usefulness and value it creates.or is it pure trading thas drives it crazy.
You can use it to buy rudimentary digital images of Santa Claus that anybody can cut and paste for free.
fake money losing value. hahaha
First crypto buyers lost their minds, then their money hahahaha hahahahahahahaha. Have fun staying poor they said to no-coiners. BEAUTIFUL
Die hard hodlrs...from diamond hands...to dust because they can't discern hype from reality.
"Rogue Transactions' coming to 90% of Crypto companies. Be sure though, that you won't be getting your money back
I want to know who's next in the domino. which hedge fund was in over their head. and which big bank supported said hedge fund...
FTX collapse is twice the level of Enron. This is great.
That's hilarious, the guy is named Bankman-Fried, and he lives in the Bahamas, you could not make that up.
I hope they all burn in *****
Hey
The plot thickens. Retailers Fleeced
Beautiful
Buy physical silver and thank me later.
the great ponzi scheme of crypto is in a long overdue spiral of death. anyone buying into this now should have their heads examined
Doesn't take a genius to figure out someone guilty is trying a last ditch attempt to take money out and go on the run. Just the fact that this guy based himself in the Bahamas should of been a major red flag.
Oh, The wonderful world of block chain. Maybe regulation isn’t such a bad thing afterall.
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