Cryptocurrency markets nursed heavy losses on Thursday, with bitcoin struggling to recover from a two-year low as investors fretted about the fallout from the implosion of crypto exchange FTX and the future of the industry.
Larger rival Binance walked away from a bailout of FTX on Wednesday. FTX head Sam Bankman-Fried said he was “exploring all the options”, but fading hopes for rescue left FTX teetering. A message on the FTX website said: “FTX is currently unable to process withdrawals. We strongly advise against depositing.”
Focus is on the unknown size of customer losses and the hit to sentiment from the latest and possibly largest collapse in an industry that has turned into a minefield for investors.
FTX’s native token, FTT is down 90 per cent this week and was attempting to steady around $2 – not far above its record low around $1.50. Bitcoin fell below $16,000 for the first time since late 2020 overnight and was last at $16,700.
Binance backed out of a non-binding offer to buy FTX after due diligence. Another exchange that declined to step in was OKX, which said it was also approached by Bankman-Fried, who described liabilities of $7 billion that needed covering fast.
“Even Elon Musk would not be able to commit to a deal with $7 billion liability within a few hours of negotiations. That was too much for us,” Lennix Lai, director of financial markets at OKX told Reuters.
“[It] is a big hole to plug,” he added. “The dagger will continue to hang over the crypto market, as long as the outlook of FTX’s fate remains unclear.”
The seeds of FTX’s downfall were sown months earlier, in mistakes Bankman-Fried made after he stepped in to save other crypto firms, according to interviews with several people close to Bankman-Fried and communications from both FTX and Binance.
There are also early signs that the fallout could spread beyond crypto markets, with jittery stockmarkets sliding on Wall Street overnight.
“A top exchange failing – that’s on a different level,” said Danny Chong, chief executive of decentralised finance firm Tranchess, with potentially wider ramifications than the failure of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital this year.
“People’s funds, including market makers’, are still currently with FTX,” he said. “Just when people were thinking that crypto winter might probably not last … along comes another episode like this.”
The US securities regulator is investigating FTX.com’s handling of customer funds and crypto-lending activities, according to a source with knowledge of the inquiry.
Bloomberg reported that the US Department of Justice is also looking into the turmoil. A DOJ spokesperson declined to comment.