Crypto.com Withdrawals Jump After Mishandled Transaction, FTX Collapse

The dramatic collapse of FTX last week is causing a ripple effect on the crypto industry, with traders around the world now on edge and ready to pull out.

Credit: Wix

According to Financial Review, Singapore-based Crypto.com saw a jump in withdrawals today as concern over the reliability of the exchange platform continues to grow. Up to 98% of transactions on the Cronos blockchain, the network underpinning Crypto.com, over the last 24 hours were reportedly withdrawals. The value of Cronos itself fell by 25% in the same period.


The top executives of crypto exchanges were forced to share their "proof of reserves" and address the scepticism around their liquidity over the weekend amid FTX's meteoric rise and fall. Together with other exchanges, Crypto.com published its digital asset addresses, which reveals how much and what digital assets it stores on behalf of its customers.


FTX, however, isn't the only exchange responsible for the sudden jump in withdrawals. Crypto.com itself is also to blame, with it "mistakenly" transferring about US$400 million worth of ether to a wallet linked to an exchange called Gate.io. While the amount has since been returned, such errors can spook traders now that they know even large players in the industry can fall.

Credit: Getty Images via The Guardian

The expectation is other exchanges apart from Crypto.com are to see similar jumps in withdrawals in the coming days. And this certainly won't do the market any favours, possibly prolonging further the so-called crypto winter.


There are a lot of factors that led to FTX's collapse, but perhaps chief among them is the exchange's close relationship with Alameda Research, a crypto hedge fund that held about half of its net assets in FTT (FTX tokens). FTT is said to be relatively illiquid, which poses a lot of risks for FTX's capital reserves.


The revelation seemingly prompted Binance, an early investor of FTX, to dump over US$2 billion worth of FTT. Binance CEO Changpeng Zhao cites the fall of Luna as the reason for his exit which triggered a wider selloff totalling about US$5 billion in a single day – a crypto version of a bank run. At this point, FTX was barely liquid enough to pay traders who wanted out and withdraw whatever funds they had.

FTX CEO Sam Bankman-Fried told the company he needed about US$8 billion to cover the withdrawals. He tried to come up with ways to produce the needed amount to no avail, and no white knight came to his rescue. This left FTX no other choice but to file Chapter 11 bankruptcy, which allows it "to assess its situation and develop a process to maximize recoveries for stakeholders".


Bankman-Fried, who later resigned from his post, founded both the FTX and Alameda Research.


"With these types of events happening, it's devastating for the industry," said Chaopeng Zhao at a conference in Indonesia, addressing FTX's collapse. "A lot of consumer confidence is shaken, and I think basically it sets us back a few years." He predicts there'll be more regulatory scrutiny moving forward that'll look into the capital requirements and handling of deposits of crypto exchanges.

 
  • The dramatic collapse of FTX last week is causing a ripple effect on the crypto industry, with traders around the world now on edge and ready to pull out.

  • The Singapore-based Crypto.com saw a jump in withdrawals today as concern over the reliability of the exchange platform continues to grow.

  • Up to 98% of transactions on the Cronos blockchain, the network underpinning Crypto.com, over the last 24 hours were withdrawals.

  • Crypto.com itself is also to blame, with it "mistakenly" transferring about US$400 million worth of ether to a wallet linked to an exchange called Gate.io.

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