Rival exchanges try to avoid the Domino Effect as US regulators probe FTX collapse

Recently, US authorities start an investigation into the spectacular collapse of FTX as the bankruptcy rippled through the entire cryptocurrency market.

About FTX

FTX was a leading centralized cryptocurrency exchange founded by Sam Bankman-Fried (SBF), who is an American entrepreneur, investor, and former billionaire. FTX offered a range of trading products, including derivatives, options, volatility products, and leveraged tokens. It also provides spot markets in over 300 cryptocurrency trading pairs such as BTC/USDT, ETH/USDT, and XRP/USDT. Besides, FTX is very focused on marketing the sports and entertainment world. Many celebrities had partnerships with FTX.

According to reports, the U.S. Justice Department, the Securities and Exchange Commission, and Commodity Futures Trading Commission all have started investigations on the FTX issue.

Michael Barr, the Fed's top regulatory official, signaled on Monday that stiffer oversight of cryptocurrencies is coming. This includes “safeguards” to ensure crypto companies are subject to similar rules as other financial firms, Barr said in written testimony released before an appearance at the Senate Banking committee on Tuesday. U.S. Senator Sherrod Brown, a Democrat who chairs the committee, also weighed in. “My focus has always been on the fraud, scams, volatility, and outright theft in the crypto industry,” he said. “FTXs bankruptcy and the many other recent instances of instability have proved why we need a comprehensive regulatory approach that protects consumers.”

FTX filed for bankruptcy protection on Friday in one of the highest-profile crypto blowups after frenzied traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a rescue deal.

When comes to the reason for FTXs downfall, Sam Bankman-Fried explains that his company had expanded too fast, according to an interview with the New York Times published on Monday.

Bitcoin, which hit a record high of $69,000 a year ago, slid back below $16,000 early on Monday before recovering to trade at $16,401, up 0.56% at 5:56 p.m. EST (2256 GMT).

Rival exchange actions

FTXs rival exchanges are trying to calm investors as the storm is not gone yet. LedgerX LLC, an FTX subsidiary, on Monday withdrew its request from last December with the U.S. Commodity Futures Trading Commission to allow it to offer products that are not fully collateralized.

Cryptocurrency lender BlockFi, which signed a deal with FTX to provide it with a $400 million revolving credit facility with an option to buy it for up to $240 million, said it has significant exposure to FTX.

Other crypto exchanges have been publishing details of their reserves and promising further disclosures in an attempt to soothe investor nerves amid unverified rumors.

Kris Marszalek, chief executive of Singapore-based crypto exchange Crypto.com, which made headlines in 2021 with a $700 million deal to rename the Staples Center in Los Angeles the Crypto.com Arena, rebutted suggestions it was in trouble.

In an “ask-me-anything” YouTube livestream, Marszalek said the exchange always maintained reserves to match every coin customers held on its platform and that an audited proof of Crypto.com's reserves will be published within weeks.

The move 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 Oct. 21.

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

A Crypto.com spokesperson did not respond to a request for comment on whether the platform's outflows continued on Monday.

Crypto.com is an influential exchanges among the top 10.

Another crypto exchange, Kraken, said on Twitter on Sunday that it froze the accounts of FTX, affiliated crypto trading firm Alameda Research, and their executives.

“We have actively monitored 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 misconduct' related to FTX,” a Kraken spokesperson said.

Changpeng Zhao, CEO of Binance, the world's largest crypto exchange, said he would look to create an industry recovery fund to help projects that were “otherwise strong but in a liquidity crisis.”

Binance last week signed a nonbinding letter of intent to buy FTXs non-U.S. assets but later abandoned the deal, precipitating its bankruptcy. Zhao has since warned of a “cascading” crypto crisis.