Huge sums missing from collapsed crypto exchange
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Huge sums missing from collapsed crypto exchange

FTX investigating fund transfer 'abnormalities' as it seeks bankruptcy protection

A smartphone screen displays the FTX app, which executives of the failed crypto exchange say they should delete as it has been hacked. (AFP File Photo)

A smartphone screen displays the FTX app, which executives of the failed crypto exchange say they should delete as it has been hacked. (AFP File Photo)

The collapsed crypto exchange FTX said on Saturday that it was moving funds into offline storage following a series of “unauthorised transactions”, with analysts saying millions of dollars worth of assets had been withdrawn from the platform.

Ryne Miller, the general counsel of FTX US, said in a tweet on Saturday that the exchange was expediting the process of shifting all digital assets into cold storage “to mitigate damage upon observing unauthorised transactions”.

Cold storage refers to crypto wallets that are not connected to the internet to guard against hackers.

Late on Friday, Miller tweeted that he was “investigating abnormalities with wallet movements related to consolidation of FTX balances across exchanges”.

Figures from the Singapore-based analytics firm Nansen showed a one-day net outflow from FTX, the world’s second-largest crypto exchange, of about $266 million, with $73 million withdrawn from FTX US alone.

FTX did not respond to a Reuters request for comment.

Prior to Miller’s tweets, FTX executives appeared to confirm rumours of a hack on the firm’s Telegram channel, according to a CoinDesk report, which said that the exchange had instructed customers to delete FTX apps and avoid its website.

“FTX has been hacked,” an account administrator in the FTX Support Telegram channel wrote in a message, according to CoinDesk.

FTX, its affiliated crypto trading firm Alameda Research and about 130 of its other companies filed for bankruptcy protection from creditors in the business-friendly courts of the state of Delaware on Friday.

The distressed platform had struggled to raise billions as traders withdrew $6 billion in crypto tokens from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.

As peers and partners distanced themselves from FTX, sources told Reuters that at least a billion dollars of customer funds on the exchange had vanished.

The saga began with a rumour on Nov 2 and culminated on Friday with the bankruptcy and the resignation of founder Sam Bankman-Fried as chief executive in the industry’s highest-profile collapse to date.

FTX said some subsidiaries — LedgerX LLC, FTX Digital Markets, FTX Australia Pte Ltd, FTX Capital Markets, Embed Financial Technologies and Embed Clearing — were not included in the Chapter 11 bankruptcy filings.

People familiar with the matter told Reuters that at least $1 billion of customer funds have vanished from FTX.

Bankman-Fried secretly transferred $10 billion of customer funds from FTX to Alameda, they said. A large portion of that has since disappeared, they said, with one source put the missing amount at about $1.7 billion and another estimating the gap was between $1 billion and $2 billion.

Nansen estimated coins flowed out of both FTX’s international and US exchanges. Paolo Ardoino, chief technology officer at the stablecoin issuer Tether, referenced a tweet suggesting more than $30 million of the holdings of the “FTX attacker” in the token have been blacklisted.

“It’s unclear exactly who’s making the transactions, but you wouldn’t expect to see these on-chain trades at this time,” said Alex Svanevik, CEO of Nansen.

The nine days of turmoil hit already struggling cryptocurrency markets, sending bitcoin to two-year lows. Bitcoin dropped after FTX’s announcement and is down 18% this month, at $16,818 on Saturday.

Shares of cryptocurrency and blockchain-related firms have declined. FTX’s token FTT plunged 30% on Friday, bringing its collapse this month to 91%.

“Things will continue to simmer after the FTX crash,” said Alan Wong, operations manager of Hong Kong Digital Asset Exchange.

“With a gap of $8 billion between liabilities and assets, when FTX is insolvent, it will trigger a domino effect, which will lead to a series of investors related to FTX going bankrupt or being forced to sell assets,” he said.

“In an illiquid bear market, the event will lead to a new round of cryptocurrency declines, as well as a liquidation of leverage.”

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