FTX bankruptcy hits the cryptocurrency market
One of the world's largest cryptocurrency exchanges, FTX could be on the verge of declaring bankruptcy if it doesn't receive a fresh capital injection, said founder and CEO Sam Bankman-Fried.
Bankman-Fried allegedly warned investors that FTX has an estimated $8 billion shortfall following a liquidity crisis. Also, FTX needs a cash injection to cover customer withdrawal requests.
At this moment, the broker's website displays a message advising against making deposits and the registration of new users is paused. Additionally, two websites linked to the cryptocurrency exchange, including Alameda Research and FTX Ventures, are offline and remain private.
Enhanced Regulation
SEC Chairman Gary Gensler took the moment to say that cryptocurrency companies have been warned and reinforced his point that the industry needs more regulation to protect investors.
Garry previously stated that the sudden collapse of FTX is part of a broader trend in digital assets, blaming high leverage as well as "a lack of disclosure, opacity and use of other people's money."
The American arm of FTX is already under investigation by the SEC for dealing with client assets and will certainly take advantage of this opportunity to push new laws and guidelines for the sector to operate in the North American market.
Systemic Risk
With the possible failure of FTX, markets are concerned about the possibility of a systemic risk that affects other companies and institutions. One of the rumors that emerged before the event was the possibility that the Bitcoin reserves of El Salvador, a country that uses cryptocurrency as legal tender, could be held in custody at the FTX. Fortunately, Salvadoran President Nayib Bukele clarified that the does not have any Bitcoin exchange.
BlockFi, a company focused on lending users cryptocurrencies and paying substantial dividends, has announced that it is pausing withdrawals after the FTX crash. According to the company, the decision came due to a "lack of clarity" surrounding FTX's current situation. On its website there is a warning to customers not to make new deposits.
— BlockFi (@BlockFi) November 11, 2022
While it's too early to say that the FTX crash won't do any major financial damage, perhaps the worst damage was the blow to the industry's credibility. Contagion of the cryptocurrency industry in traditional financial markets is unlikely as institutional investors, always looking for high returns on their investments, now find it easier to earn from conventional assets in a high interest rate environment.
