According to reports, regulators and U.S. officials are investigating as the FTX exchange teeters on the edge of collapse following a flurry of withdrawals that have left consumers facing significant losses.
Overnight, Bitcoin lingered just over a two-year low, while other cryptocurrencies suffered significant losses as FTX teetered on the edge of collapse.
It was revealed on Wednesday that the Binance exchange had rejected a non-binding bailout offer from FTX, once the fourth-largest exchange in the industry.
Binance stated, “As a consequence of corporate due diligence and the most recent news reports concerning mismanaged client cash and suspected US agency investigations, we have chosen not to pursue the potential acquisition of FTX.
The Wall Street Journal stated that FTX, whose native token FTT has lost 90% of its value this week due to an influx of withdrawals, warned investors it required $8 billion (£7 billion) to compensate them.
Another exchange, OKX, stated that FTX chief Sam Bankman-Fried approached it this week and reported $7 billion in liabilities that needed to be covered immediately.
Lennix Lai, director of financial markets at OKX, told the news agency Reuters: “Within a few hours of negotiations, not even Elon Musk could commit to a $7 billion liability contract.
That was beyond our capabilities.
The most recent volatility in the sector is centered on the uncertain magnitude of client losses and the impact of the latest and possibly largest collapse on consumer sentiment.
Following the failures of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital in 2018, the possibility of a leading exchange failing has increased.
The cryptocurrency markets suffered severe losses on Thursday, with bitcoin seeking a recovery near $16,700 after a 20% weekly decline.
FTT fell slightly above its record low of $1.50 but was trading just above $2.
Bankman-Fried stated that he was “considering all options,” but there were no indications that any other means of rescue had been made available.
Reuters reported that the US Securities and Exchange Commission was examining FTX.com’s handling of customer funds and crypto-lending activities, while Bloomberg reported that the US Department of Justice was also probing the situation.
Danny Chong, chief executive officer of decentralized finance company Tranchess, stated that the troubles at FTX have broader implications than the sector’s previous failures.
People’s monies, including those of market makers, remain with FTX.
Just when people were beginning to believe that the crypto winter might be coming to an end, another such occurrence occurs.”
Investors are already writing down FTX investments.
On Wednesday, venture capital firm Sequoia Capital reduced a $150 million commitment to zero.
FTX investors also include Ontario Teachers Pension Plan, Tiger Global, and Softbank.
The issue is being felt more broadly, according to markets.com’s senior market analyst, Neil Wilson: “While crypto isn’t a particularly large market overall, it’s obviously tied to things like risk and liquidity, and so it’s contributing to a sour mood in the market today.”
