Regulators are circling FTX as competing exchanges try to reassure investors

Regulators are circling FTX as competing exchanges try to reassure investors
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  • US Department of Justice, SEC and CFTC are investigating FTX, sources say
  • Fed’s Brainard: Crypto should be governed by traditional financial rules
  • CEO says he will release proof of reserves
  • Bitcoin stable around $16,590

NEW YORK, Nov 14 (Reuters) – Bitcoin and other cryptocurrencies were under pressure on Monday after cryptocurrency exchange FTX’s spectacular collapse last week, while regulators warned opened probes and competing exchanges sought to reassure nervous investors of their own stability.

The implosion of FTX, once a crypto industry darling valued at $32 billion in January, has sparked investigations by the U.S. Department of Justice, the Securities and Exchange Commission and the Commodity Futures Trading Commission, a source with knowledge of the investigation said.

The SEC’s investigation also targets FTX executives for their knowledge of handling client funds and possible violations of securities laws, said a second source with knowledge of the investigation.

While the crypto industry has characterized digital assets as fundamentally different from traditional finance, the sector has proven vulnerable to the same risks and should be subject to the same rules, Lael Brainard, vice chairman of the Federal Reserve, said on Monday.

“It reiterates, in my view, the need to ensure that because crypto finance is no different than traditional finance in the risks it poses, it needs to fall below the regulatory perimeter,” she said.

FTX has filed for bankruptcy on Friday in one of the most high-profile crypto explosions, after frenzied traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed bailout deal.

Bitcoin, which hit a record high of $69,000 a year ago, slipped back below $16,000 early Monday before recovering to trade at $16,590 as of 2pm EST (1900 GMT), up 1.72% . Down around 18% in November, Bitcoin faces its biggest monthly percentage drop since June, when the fallout from stablecoin TerraUSD’s failure rocked markets.

FTX’s token was worth just $1.30, down 94% in November, while’s Cronos token was halved to 6 cents over the past week, according to pricing site Coingecko.


The rapid demise of FTX, once a white knight for struggling crypto firms, has sent shockwaves through the crypto industry, which braces for more consequences.

LedgerX LLC, an FTX affiliate, on Monday formally withdrew his application last December with the US Commodity Futures Trading Commission to allow it to offer products that are not fully collateralised.

Cryptocurrency lender BlockFi, which has signed a deal with FTX to provide it with a $400 million revolving credit facility with an option to buy up to $240 million, said Monday that it does significant exposure the FTX.

Other crypto exchanges have released details of their reserves and promised more disclosures to calm investors’ nerves amid unconfirmed rumors.

FTX’s logo is seen at the entrance to FTX Arena in Miami, Florida, the United States, November 12, 2022. REUTERS/Marco Bello

Kris Marszalek, CEO of Singapore-based crypto exchange, which made headlines in 2021 with a $700 million deal to rebrand Los Angeles’ Staples Center to Arena and represented its platform in a commercial featuring the Actor Matt Damon was recruited refuted proposals, it was in trouble.

In an “ask-me-anything” YouTube live stream on Monday, Marszalek said the exchange has always maintained reserves to match all coin clients held on its platform, and that within weeks was an audited proof of’s reserves will be published.

The move comes after investors took to Twitter over the weekend to question an Oct. 14 transfer of $400 million worth of Ether tokens to the exchange. 21

Marszalek tweeted Sunday that the ether was reclaimed and returned to the exchange, but The Wall Street Journal reported that withdrawals at surged over the weekend.

A spokesman did not respond to a request for comment on whether the platform’s outflows continued on Monday. is among the top 10 such exchanges by revenue globally, but is smaller than FTX and market leader Binance.

Another crypto exchange, Kraken, said on Twitter Sunday that it had frozen the accounts of FTX, affiliated crypto trading firm Alameda Research, and its executives.

“We have been actively monitoring recent developments in the FTX estate, are in contact with law enforcement and have frozen Kraken accounts’ access to certain funds which we suspect are linked to ‘fraud, negligence or wrongdoing’ FTX,” a Kraken spokesman said.

Separately, smaller Asia-based exchange AAX halted withdrawals over the weekend, citing bugs at an unnamed third-party partner during a planned system update.

AAX said it hopes to resume regular operations in seven to 10 days, but in one Note to customers said, “Given the bankruptcy of one of the biggest players in our industry over the past week, crypto users are rightly concerned about the operational and financial health of centralized digital asset exchanges.”

Changpeng Zhao, CEO of Binance, the world’s largest crypto exchange, said he would try to create one an industrial recovery fund to help projects that were “otherwise strong but facing a liquidity crisis”.

Binance signed a non-binding letter of intent to purchase FTX’s non-US assets last week, but later abandoned the deal, hastening bankruptcy. Zhao has since warned of a “cascading” crypto crisis.

Reporting by John McCrank in New York, Vidya Ranganathan in Singapore and Alun John in London Additional reporting by Chris Prentice in New York, Xinghui Kok in Singapore and Elizabeth Howcroft in London Editing by Kirsten Donovan, Jonathan Oatis and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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