FTX scrambles for funds as regulators take action

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SINGAPORE, Nov 11 (Reuters) – Regulators froze some assets of troubled cryptocurrency exchange FTX and industry peers rushed to limit losses on Friday amid worsening solvency problems of the company and increased control of its managing director, Sam Bankman-Fried.

The week-long saga that began with a run on FTX, one of the biggest crypto exchanges, and a failed takeover deal by rival Binance has hit already struggling bitcoin and other tokens.

FTX is scrambling to raise around $9.4 billion from investors and competitors, a source said Thursday, as the exchange urgently seeks to bail out after a wave of customer withdrawals.

Meanwhile, the Bahamas Securities Commission said on Thursday that it froze the assets of FTX Digital Markets, a subsidiary of FTX. Bankman-Fried is also being investigated by the U.S. Securities and Exchange Commission for possible securities law violations, according to an unverified tweet from a Bloomberg reporter.

Bitcoin fell 4% to $16,858 on Friday, with losses totaling 17% this month. FTX’s FTT token fell 27% to $2.7, with losses of 89% for the month.

Trading volumes on bitcoin futures and exchange-traded funds have skyrocketed.

“Trust disappeared on the first day of this fallout and there is no hope yet for it to return,” said Kami Zeng, head of research at Fore Elite Capital Management, a crypto fund manager based in Tokyo. Hong Kong.

“We are already seeing actions from regulators from the US to Japan to the Bahamas etc. Expect more and that is what the crypto market badly needs right now. People are hurting and need protection.”

US lawmakers have stepped up their calls for action, including new laws to govern the industry and an investigation into what led to FTX’s collapse.

With the increase in losses, more and more lenders and crypto platforms have described increasing volumes and measures to protect themselves. Crypto lender BlockFi said it was suspending customer withdrawals until there is clarification on FTX.

Broker Genesis Trading has revealed that its derivatives business has approximately $175 million in funds locked on FTX.

“We believe there is at best a 20-30% chance of an FTX rescue,” said Matthew Dibb, chief operating officer of Singapore-based crypto investment manager Stack Funds.

He noted that speculators are paying 10 cents for every dollar to buy trapped deposits on FTX.

“The damage seems to be done and even if FTX were bailed out, it would no longer be a way to trade as they have lost all credibility. A bailout of FTX would not be for the company, but for the clients and the crypto ecosystem. “

The seeds of FTX’s downfall were sown months earlier, in the mistakes made by Bankman-Fried after it intervened to save other crypto companies. Sources told Reuters that FTX transferred at least $4 billion to Alameda, to prop up the trading company after a string of losses.

BUILDING ON SUPPORT

Bankman-Fried discussed raising $1 billion each from Justin Sun, the founder of crypto token Tron, rival exchange OKX and stablecoin platform Tether, according to the source with direct knowledge of the matter. .

It is seeking the rest from other funds, including current investors such as Sequoia Capital, the source added.

It was unclear if Bankman-Fried would be able to raise the funds it needed or if those investors would participate.

FTX’s predicament marks a stunning downfall for the 30-year-old crypto executive who was once worth almost $17 billion.

Reuters Charts Reuters Charts

The US securities regulator is investigating FTX.com’s handling of client funds and crypto lending activities, according to a source with knowledge of the investigation.

Additional reporting by Rae Wee in Singapore, Hannah Lang in New York, David Shepardson in Washington, Aishwarya Nair in Bangalore; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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