Hacking fears after $650m vanishes from collapsed crypto firm

Archbishop Jerome Lloyd OSJVPosted by

Exchange’s collapse on Friday risks sparking a wider panic

Hacking fears after $650m vanishes from collapsed crypto firm
Sam Bankman-Fried, founder and chief executive officer of FTX Cryptocurrency Derivatives Exchange,
Sam Bankman-Fried, FTX’s founder, has seen his multibillion pound fortune erased

Cryptocurrency exchange FTX is facing fresh controversy after observers noticed “unusual” withdrawals totalling around $650m from the collapsed website’s funds on Saturday.

The collapse of FTX, one of the world’s biggest exchanges, has wiped $150bn (£126bn) off the cryptocurrency market’s value, amid fears that the crisis could yet deepen.

FTX filed for bankruptcy protection in the US on Friday following a liquidity crisis that left the crypto exchange unable to meet customer demands for billions of dollars worth of withdrawals.

In the hours after the collapse, there were “abnormalities with wallet movements”, the general counsel of FTX’s US arm Ryne Miller said, which prompted fears the site had been hacked. 

Mr Miller wrote on Twitter that FTX had begun moving digital assets into cold storage – wallets that are unconnected to the internet – following its bankruptcy on Friday, and said the process was later accelerated “to mitigate damage upon observing unauthorised transactions”.

Until last week, the company was a top five venue for trading crypto­currencies globally, handling tens of billions of dollars of trade each day. Concerns about its balance sheet following a report in the industry press triggered its liquidity crisis.

Sam Bankman-Fried, the founder of FTX, was yesterday forced to deny he had flown to South America following speculation on Twitter, telling reporters he was still in the Bahamas.

Changpeng Zhao, the billionaire founder of Binance, the world’s biggest crypto exchange, warned that “cascading effects” from FTX’s collapse risk triggering the crypto equivalent of the 2008 financial crisis. 

The value of the global crypto market dropped from around $1 trillion to $853bn by Friday night, according to data from the website CoinMarketCap, amid a wave of selling.

Bitcoin dropped to two-year lows against the dollar, trading at around $16,000. It hit an all-time high above $68,000 almost exactly a year ago. 

Millions of people have investments in the sector, with major US exchange Coinbase claiming to have more than 100m customers worldwide.

However, prices have fallen rapidly over the past 12 months amid cooling interest as rising rates make the sector less attractive.

Dan Ives, a technology analyst at Wall Street firm Wedbush, said the turmoil meant a “crypto winter” that has already sent the value of digital assets plunging this year now risks “turning into an ice age”. 

Carol Alexander, a professor of finance at Sussex University, said: “There will be mass bankruptcies. The contagion could last for weeks.”

Blair Halliday, UK boss of cryptocurrency exchange Kraken, said the FTX crisis would negatively affect consumers’ perception of cryptocurrencies “for years to come” and called for more regulation to stabilise the sector. 

The US Securities and Exchange Commission (SEC) and the Department of Justice are both investigating FTX, according to The Wall Street Journal.

Mr Zhao said FTX’s demise represented “another very big player going down” after the collapse of the Luna digital currency in May. 

“With this type of event happening, it’s devastating. A lot of consumer confidence is shaken,” he told an conference in Indonesia. 

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