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

By Summer Zhen, Vidya Ranganathan and Elizabeth Howcroft

HONG KONG/SINGAPORE/LONDON (Reuters) - Crypto exchange FTX was engulfed in further chaos on Saturday when the company said it had detected unauthorized transactions and analysts flagged that 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.

At least $1 billion of customer funds have vanished from the platform, sources told Reuters on Friday. The firm's founder Sam 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 $473 million worth of cryptoassets were "moved out of FTX wallets in suspicious circumstances early this morning", but that it could not confirm that the tokens had been stolen.

FTX's dramatic fall from grace has seen 30-year-old 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 highest-profile crash.

Bankman-Fried, who lives in the Bahamas, has also been the subject of speculation about his whereabouts. On Saturday he told Reuters that he was in the Bahamas, denying speculation on Twitter that he had flown to South America.

The collapse shocked investors and prompted fresh calls to regulate the cryptoasset sector, which has seen losses stack up so far 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. In an illiquid bear market, the event will lead to a new round of cryptocurrency declines, as well as a liquidation of leverage."

MARKET FALLOUT

Since its founding in 2019, FTX had raised more than $2 billion from top investors including Sequoia, SoftBank, BlackRock 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 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 on Wednesday.

On Saturday it was trading around $16,831, 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."

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. John J. Ray III, a restructuring expert, was appointed to take over as CEO.

The U.S. securities regulator is investigating FTX.com's handling of customer funds amid a liquidity crunch, 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.

 

(Additional reporting by Angus Berwick in New York; Editing by Pravin Char, Megan Davies and Daniel Wallis)