FTX collapse made leaving currencies in the exchange risker

The abrupt fall of FTX Trading has fogged the entire cryptocurrency market, raising concerns that even the world's largest exchange for digital assets may be vulnerable.

According to blockchain analytics firm Nansen, customers withdrew over $2 billion in crypto assets from Binance in a single day, with customers withdrawing $8.7 billion over a seven-day period. The loss of cash has compelled Binance CEO Changpeng Zhao to reply, and he has attempted to allay fears that the firm is in danger.

A Binance spokeswoman told in an interview that consumers withdrew $1.14 billion from the site in 12 hours, but that the transactions were "handled with simplicity."

On Dec 14, he tweeted. Zhao described the withdrawals as "business as usual for us."

"We have seen this before, Some days we have net withdrawals; some days we have net deposits." - Zhao stated.

Related: Analysis of Post FTX Collapse

FUD After the FTX Fiasco

According to experts, the crypto business has entered an era of FUD — fear, uncertainty, and doubt — for investors. Customers who use cryptocurrency exchanges have been watching what occurred at FTX and are now concerned about the safety of their investments, they claimed.

Binance, Crypto.com, Kraken, and other firms have issued proof of reserve, or PoR, documentation to assuage client worries about their financial health. These are essentially financial snapshots of an exchange made public to demonstrate to consumers that the firm has sufficient liquidity to handle a significant number of withdrawals at once.

Binance revealed its PoR last month, and there has been discussion among crypto fans over how the company calculated it, according to Omid Malekan, a crypto specialist and management professor at Columbia University

According to analysts, this argument prompted investors to make huge withdrawals just in case.

"Right now, there is a broad scepticism of [cryptocurrency] exchanges," said crypto risk expert Joshua Peck. "These exchanges are being put through their paces to determine if they can withstand the withdrawals."

Adding More Fuel to the Fear

Investors are right to be concerned. Along with FTX, many other cryptocurrency firms have filed bankruptcy this year as the value of digital assets has plummeted, including BlockFi, Celsius Network, and Voyager Digital, and it's unclear whether customers of those platforms will ever get reimbursements.

Nonetheless, Malekan believes Binance has matured enough to weather the storm, adding that the exchange has enough funds on reserve to handle customer withdrawals if situations deteriorate further. According to Nansen statistics, Binance has reserves worth more than $60 billion.

 

Source: Nansen

Malekan also claimed that Binance appears to have avoided the critical errors that doomed FTX, such as allegedly funnelling customer funds to Alameda Research, the hedge fund formerly run by FTX founder Sam Bankman-Fried, who is now imprisoned in the Bahamas on eight counts of fraud, conspiracy, and other financial crimes.

Exchange Outflows Raised After FTX Collapse

According to two persons acquainted with the situation, at least $1 billion in client assets have gone from the defunct cryptocurrency exchange FTX.

Sam Bankman-Fried, the exchange's creator, covertly moved $10 billion in client cash from FTX to Bankman Fried's trading firm Alameda Research.

According to them, a major chunk of that sum has subsequently vanished. According to one estimate, the missing sum is almost $1.7 billion. The other stated that the difference was between $1 billion and $2 billion.

The irony of a CEO of a centralized exchange who falsifies the book's campaigns for excessive regulation of DeFi is too evident to need explanation. According to all accounts, SBF and a small group of persons in the Bahamas were taking unprecedented risks at FTX. 

Analysts have questioned if actions such as the freezing of withdrawals were not also used to invest consumers' cash. And this information is just now becoming public owing to a lack of regulatory rules governing exchange disclosures.

Investors Switching to Cold Storage

The fall of FTX saw an increase in the number of crypto investors burrowing into hardware or "cold wallets" to protect the safety of their assets from external events, as opposed to "hot wallets."

The FTX crash resulted in increased usage of cold wallets for hardware wallet makers like Ledger, which reported continuing profits in November.

Along with Ledger, another hardware wallet vendor, Trezor, had a 300 per cent surge in sales.

According to Coinglass data, exchanges now have 9.4% fewer Bitcoins than they had on November 10th, when they had a balance of 2.02 million coins.

As these digital wallets aren't linked to the internet, they're less vulnerable to hacking, which may pique the interest of the Bitcoin, Ethereum, and Tether communities in using cold wallets in the aftermath of the FTX crash.

FTX Collapse FAQs

Why did FTX collapse?

The cryptocurrency exchange went bankrupt after it was discovered that Alameda had been utilizing FTX client funds to cover trading losses.

Where did the money from FTX go?

FTX, for instance, moved hundreds of millions of dollars in bitcoin to Alameda and then to the trading business Genesis, which had previously served as a key lender to a number of crypto startups.

Is FTX still trading?

FTX Trading Ltd. (short for "Futures Exchange") is a bankrupt corporation that once ran a cryptocurrency exchange and crypto hedge fund. The exchange was created in 2019 and had over one million customers at its peak in July 2021, making it the third-largest cryptocurrency exchange by volume.

Why is FTX Token not allowed in the US?

US residents are not permitted to trade on FTX's worldwide platform: Residents of the United States have restricted access to FTX due to strong crypto restrictions in the country. The exchange has a partner in the United States, FTX.US, however, its offers are more limited than those of the worldwide platform.

When did FTX go bankrupt?

FTX as well as FTX US. A purported hack drained US wallets on the evening of November 11. According to reports, more than $600 million was stolen from the wallets.

Who were the largest investors in FTX?

According to PitchBook, the $500 million Series C raised by FTX attracted investors such as SoftBank, Lux Capital, Tiger Global, Lightspeed, and Temasek, among others.

How much money did FTX lose?

Sam Bankman-Fried, the accused founder of the now-defunct crypto exchange FTX and trading firm Alameda Research, apologized to employees in a letter that detailed a drop in "collateral" from $60 billion to $9 billion.