The swift collapse of cryptocurrency exchange FTX sent more shockwaves through the crypto world on Thursday, with authorities now investigating the firm for potential securities violations and analysts bracing for a further downturn in crypto prices.
FTX had agreed earlier this week to sell itself to bigger rival Binance after experiencing the cryptocurrency equivalent of a bank run. Customers fled the exchange after becoming concerned about whether FTX had sufficient capital.
The investigation into Bankman-Fried and FTX by those in the crypto world as well as securities regulators is centering on the possibility that the firm may have used customers' deposits to fund bets at Bankman-Fried's hedge fund, Alameda Research. In traditional markets, brokers are expected to separate client funds from other company assets. Violations can be punished by regulators.
A person familiar with the dealings between FTX and Binance described the books as a "black hole" where it was impossible to differentiate between the assets and liabilities of FTX the exchange and those of Alameda Research. This person spoke on condition of anonymity because they weren't authorized to speak publicly about the matter.
In a series of Tweets on Thursday, the FTX founder and CEO said that he did not have enough liquidity to cover withdrawals and that he was more leveraged than he had thought.The latest crisis in the crypto industry prompted renewed calls for stricter regulation. White House press secretary Karine Jean-Pierre said the FTX developments "highlights why prudent regulation of cryptocurrencies is indeed needed.
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