As regulators scrutinize FTX, rival exchanges try to reassure investors

SINGAPORE/LONDON, Nov 14 (Reuters) – Bitcoin and other cryptocurrencies remained under pressure on Monday after last week’s collapse of crypto exchange FTX as rival exchanges sought to reassure jittery investors about their own stability.

Kris Marszalek, CEO of Singapore-based crypto exchange Crypto.com, dismissed suggestions that it might be in trouble, saying in a YouTube livestream address that the platform would prove naysayers wrong.

The ‘AMA (ask-me-anything)’ session 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 October 21.

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

An audited proof of the exchange’s reserve report will be published within weeks, Marszalek said on Monday, adding that the exchange did not engage in any “irresponsible lending products”.

Crypto.com is among the top 10 exchanges by turnover globally, but less than FTX and market leader Binance. It made headlines in 2021 by signing a $700 million deal to rename the Staples Center in Los Angeles the Crypto.com Arena, and getting actor Matt Damon to promote the platform.

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

It was engulfed in more chaos on Saturday after it said it had detected unauthorized access, and analysts said hundreds of millions of dollars in assets had been moved from the platform under “suspicious circumstances”.

New FTX CEO John J. Ray III said Saturday that the company was working with law enforcement and regulators to curb the problem, and was making “every effort” to secure assets. Former CEO and FTX founder Sam Bankman-Fried previously told Reuters that some of the transfers from FTX were the result of “confusing internal labeling”.

Another crypto exchange Kraken said on Twitter on Sunday that it had frozen the accounts of FTX, its associated crypto trading firm Alameda Research and their executives.

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

Bitcoin crashed back below $16,000 early Monday before recovering to trade at $16,774, up 2.8% on the day. Still, with losses so far in November of 18%, it’s still set for the biggest monthly percentage drop since June, when the fallout from the failure of stablecoin TerraUSD rocked markets.

FTX’s token was worth just $1.3, down 94% in November, while Crypto.com’s Cronos token has halved in the past week to $0.06, according to pricing site Coingecko

INVESTOR NERVES

FTX’s collapse has unnerved investors as unconfirmed rumors swirl, even as exchanges publish details of their reserves and promise further disclosures.

“One of the theories floating around is that exchanges are moving crypto around to bolster their balance sheets and make everything look good even when it’s anything but,” said Zennon Kapron, founder of fintech consultancy Kapronasia.

“It’s like someone showing someone a bank statement that you had $100 in your account at 2:00 p.m. this afternoon. At 1:00 p.m. it might have been $1 and someone just transferred you $99, and at 4:00 p.m. you’re going to send it back … A snapshot tells us very little about the actual health of an exchange.”

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

AAX said it hoped to resume normal operations for all users within 7-10 days, but noted in a note to clients that: “In light of the insolvency of one of our industry’s largest players last week, crypto users are rightly concerned for the operation and financial stability of centralized digital asset exchanges”.

Changpeng Zhao, CEO of Binance, the world’s largest crypto exchange, tweeted that he would look to create an industry recovery fund to help projects that were “otherwise strong but in a liquidity crisis,” adding that more details would be forthcoming.

Binance, last week, signed a non-binding letter of intent to buy FTX’s assets outside the US, but later walked away from the deal, triggering the bankruptcy.

Zhao has since warned of a “cascading” crypto crisis.

Meanwhile, regulators continued to circle FTX, which itself had been a white knight investor for failed crypto projects this summer.

The Bahamas Securities Regulatory Authority and financial investigators are investigating potential wrongdoing over FTX’s collapse, the Royal Bahamas Police Force said on Sunday.

Visa Inc ( VN ), the world’s largest payment processor, said on Sunday it was terminating its global credit card agreements with FTX.

Additional reporting by Xinghui Kok in Singapore and Elizabeth Howcroft in London; Editing by Sam Holmes, Kirsten Donovan

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