The sudden collapse of FTX cast doubt among exchange users over their fund’s security held in custodial wallets. The revelation by Bahamas authorities of FTX Group filing for bankruptcy last week caused a widespread shockwave across the virtual assets market.
The aftershocks of the sudden implosion of a key player in the global crypto assets extended on Monday from the crisis witnessed mid-last week.
Essentially, the disclosure that liabilities of the bankrupted exchange approximated $8.8 billion triggered contagion fears that led cryptos into the red zone.
The collapse triggered conversations amongst industry insiders likening the downfall to the ‘Lehman moment’ when the investment bank implosion translated to the 2008 financial crisis.
The FTX downfall eroded cryptos holders’ confidence leading to unanticipated crypto turmoil. With the crypto holders and authorities caught unawares, FTX’s downward spiral will embolden the global call for tighter regulatory scrutiny.
Moreover, wallet holders are enjoined to the casualties of the apparent failure by FTX Group as investors swap exchange platforms for self-custody.
FTX’s provisional liquidation has prompted investigations from multiple jurisdictions led by Bahamas authorities, who initiated investigations on whether criminal misconduct caused the collapse.
Secondly, the Bahamas Securities Commission has teamed with the Financial Crimes Investigation to determine whether criminal misconduct led to the collapse.
The probe by the Royal Bahamas Police Force coincided with the FTX announcing its in-house investigation to determine if unauthorized access to the held assets occurred.
US authorities have initiated parallel investigations since over 100 companies within the FTX group, such as FTX US, Alameda Research and West Realm Shires Services, and FTX Trading, initiated bankruptcy filing proceedings.
California-based Department of Financial Protection and Innovation joined the Department of Justice and Securities and Exchange Commission to examine the sudden failure.
The FTX Group fiasco has fueled historic outflows from the centralized exchange as crypto holders fear losing billions of dollars in deposits.
However, the impact of FTX’s dramatic downfall is only taking shape given the broad business empire built by the Group founder – Bankman-Fried. FTX’s failure has dragged the diversified investment portfolio comprising smaller crypto firms and partnerships into chaos.
Besides thrusting SkyBridge Capital into turmoil, BlockFi suspended the crypto lending operations with Solana crashing. FTX Future Fund team resigned, citing that Bankman-Fried financed their charitable operations. Genesis trading platform confirmed $175 million of stored assets in FTX were locked.
Pantera Capital suffered a similar fate, with $135 million of its hedge funds held in FTT and FTX stock. The extended tentacles of Bankman-Fried investment in crypto firms will spark further contagion fears likely to plunge the market into a prolonged bearish period.