FTX has been in a tight corner for the past few weeks, and its downward spiral might change the face of the cryptocurrency sector for good.
On 11 November 2022, following Binance’s refusal to buy FTX and the company’s failure to find another investor, Sam Bankman-Fried has resigned as CEO and has been replaced by John J. Ray III. At the same time, the exchange has filed for bankruptcy protection in the United States, which triggered a cascade of events.
According to financemagnates.com, the group involved in the bankruptcy proceedings include FTX.COM, FTX.US, Alameda Research Ltd, and about 130 other affiliated companies. However, some of FTX’s subsidiaries were excluded from the proceedings, including LedgerX LLC, FTX Digital Markets Limited, FTX Australia Pty Limited, and FTX Express Pay Limited.
The company’s new CEO stated that the bankruptcy process will be conducted with diligence, thoroughness, and transparency. Bankman-Fried would remain in the company in order to ensure a trouble-free transition.
Just hours after the bankruptcy announcement, FTX’s crypto wallets were drained of USD 663 million according to blockchain analytics company Elliptic. Officials from FTX announced on the company’s Telegram channel that the platform had been compromised. They also warned users to steer clear of the FTX website and to avoid installing any new updates.
An official statement followed a few hours later on Twitter, and it revealed that FTX had taken precautionary steps to move all digital assets to cold storage in order to minimise damage upon observing a series of unauthorised transactions. Elliptic’s findings reveal that FTX has managed to move USD 186 million into secure storage while USD 447 million have been stolen.
The analytics firm also noted that stablecoins and other tokens were being rapidly converted to ether and dai on decentralised exchanges. Company officials compared these transaction patterns with previous large-scale thefts. As it investigated these unauthorised transactions, FTX decided to remove trading and withdrawal functionality from the platform.
On 11 November 2022, the Cyprus Securities and Exchange Commission (CySEC) has suspended the license of FTX (EU) Limited just two months after it had secured its authorisation.
A few days later, the local subsidiary of FTX in Australia, Australia Pty Limited, had its licence suspended by the Australian Securities and Investments Commission (ASIC) until 15 May 2023. According to Reuters, FTX Australia will be allowed to provide limited financial services until 19 December 2022. However, these services would only involve terminating existing derivative contracts with the clients.
FTX Australia’s licence allowed it to offer derivatives and foreign exchange contracts to retail and wholesale clients.
The Financial Conduct Authority has issued a warning in the context of FTX’s recent troubles by highlighting that FTX customers in the UK are not protected by the UK lifeboat scheme. FCA officials cited by financefeeds.com revealed that the UK’s regulation of crypto assets is limited to the registering of UK-based crypto-asset exchanges for anti-money laundering purposes.
As FTX was not authorised, regulated, or registered by the FCA, FTX’s customers in the UK cannot complain to the Financial Ombudsman Service. Instead, the FCA advised UK investors to express their concerns to the general financial advice hotline Moneyhelper.
Japanese crypto trading platform Liquid Group has reacted to FTX’s bankruptcy filing in the US by suspending fiat and crypto withdrawals on its Liquid Global platform. Liquid officials cited by cointelegraph.com clarified that the suspension is not security related but aims to ensure compliance with the requirements of voluntary Chapter 11 proceedings.
FTX acquired the Japanese crypto trading platform Liquid Group and its subsidiaries in February 2022. Following the recent suspension, users were advised not to deposit either fiat or crypto until they received more updates from the company.
Following the ongoing FTX debacle, countries such as Indonesia are looking into changing their legislation in order to protect their residents’ crypto investments and to make sure that their economic sector is guarded accordingly, especially considering Indonesia’s cryptocurrency adoption spree in recent years. To be specific, according to the Indonesian Futures Commodity Trading Supervisory Agency cited by bitcoinist.com, investors traded USD 57.5 billion in cryptocurrencies in 2022, a significant increase from the USD 4.1 billion traded in 2020.
At the time of writing, the cryptocurrency industry in Indonesia is being regulated by the state’s Trade Ministry and the Commodity Futures Trading Regulatory Agency. Local authorities are considering appointing the Financial Services Authority (OJK) as the sole regulator for Indonesia’s cryptocurrency markets. Indonesian officials clarified that the proposed change is pursuant to their financial sector’s legislation being debated in the parliament.
Hong Kong might also tighten restrictions in the crypto space following FTX’s bankruptcy filing. Previously, the Hong Kong government revealed its plans to become a crypto hub and was even considering relaxing the restrictions on retail crypto trading.
Officials from the Securities and Futures Commission cited by coindesk.com revealed their plans to set up a regime to authorise ETFs that can provide exposure to mainstream virtual assets with appropriate investment protections. No specific regulations have been announced so far by Hong Kong’s authorities, as they are still consulting with regulators and industry stakeholders.
FTX’s downfall has already changed the crypto landscape, but it’s not clear yet whether these changes will bring about the fall of crypto or if stronger regulation will prevent such a scenario from unravelling.
According to coindesk.com, in the US, civil actions against FTX and its executives are likely to follow, and regulatory changes are likely to be implemented via lawmakers or federal agencies. According to the same source, members of the US Congress from both political parties are calling for further action, and some lawmakers are talking about holding hearings by the end of the year.
A dedicated and inquisitive copywriter and blogger, Dragoș has extensive experience in editing and developing content related to IT and tech. After joining The Paypers, his focus turned to the latest fintech, payments, and crypto announcements. For Dragoș, connecting the dots and observing trends and developments in the industry is becoming second nature.
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