The cryptocurrency sector is in crisis this week following the collapse of exchange FTX, according to Hargreaves Lansdown.
Binance, the world’s biggest cryptocurrency exchange, walked away from a potential bailout deal of its smaller rival, saying that after due diligence it would not pursue the deal.
It added that reports of “mishandled customer funds and alleged US agency investigations” had swayed its decision.
FTX had been struggling with a surge in withdrawals that caused a “liquidity crunch”. Indeed, concerns about the company’s financial health reportedly triggered $6 billion of withdrawals in just three days.
A research note from Steve Clayton, head of Equity Funds at the firm, said that “the world of cryptocurrencies was rocked by the apparent collapse of Sam Bankman-Freid’s business empire”.
According to Clayton, “It has been a wild week in Cryptoland, with the implosion of the FTX crypto exchange, which is now reported to have an $8bn black hole at the heart of it”.
“At the beginning of the week its founder Sam Bankman-Freid was reportedly worth $16bn, Bloomberg reckon 95% of that disappeared in a single day, the fastest pace of one person losing money in history.”
“The events sent the wider crypto sector into a spin,” he added, noting that Bitcoin lost a quarter of its ‘value’ between the start of trading on Tuesday and midnight on 9 November, though pointing out that it had subsequently rallied slightly “but remains under pressure:, while other crypto ‘assets’ also saw significant falls.
According to Reuters, the US Securities and Exchange Commission (SEC) was investigating FTX’s handling of customer funds and its crypto-lending activities, examining whether the platform had followed securities laws about keeping customer assets separate and whether it had traded against customers.