The defunct cryptocurrency exchange FTX described a “severe liquidity crisis” in its U.S. bankruptcy filings, which also indicated that the group may have more than 1 million creditors.
This came as regulators launched investigations and lawmakers demanded that the industry be subject to clearer regulations.
According to FTX’s filing to a U.S. bankruptcy court, which was made public in the United States late on Monday, the company had assigned five new independent directors to each of its principal firms, including Alameda Research, and was in communication with financial regulators.
In one of the most publicized cryptocurrency meltdowns, the exchange, which had once been among the biggest in the world, filed for bankruptcy protection on Friday after scared users withdrew $6 billion from the marketplace in only 72 hours and rivals, Binance, ditched a rescue plan.
According to the court petition, “FTX experienced a serious liquidity situation that required the filing of these cases on an emergency basis last Friday.”
“Questions developed over Mr. Bankman-management Fried’s and the administration of FTX’s intricate web of assets and operations.”
Sam Bankman-Fried, the founder and former CEO of FTX, said that he overgrew his company and missed warning indications of instability at the exchange, whose collapse shocked the cryptocurrency sector, according to a late-Monday report by the New York Times.
According to the papers, there are more than 100,000 creditors associated with the bankruptcy case, though this figure may exceed one million because FTX asked that each company in the FTX group file one combined list of important creditors rather than individual ones.
Additionally, the papers supported FTX’s claim on Saturday that it had discovered “fraudulent activity” on its platform and that it had responded to a cyberattack on November 11th.
In addition to the U.S. Attorney’s Office, SEC, CFTC, and numerous other federal, state, and foreign regulatory bodies within the past 72 hours, FTX has hired Alvarez & Marsal as its financial consultant.
Financial authorities and other regulatory agencies from all over the world are looking into the abrupt collapse of FTX, a company with its headquarters in the Bahamas that was once a rising star in the cryptocurrency sector and had a $32 billion valuation as of January.
According to a statement from the Securities Commission of The Bahamas, two PwC partners were authorized by the Supreme Court to serve as joint interim liquidators for FTX.
Given the significance, urgency, and global consequences of the current circumstances, the Commission stated it has taken action to use its regulatory authority to defend the interests of customers and creditors of FTX Digital Markets, a local branch of the exchange.
It promised to cooperate with additional regulatory agencies. In addition to investigating the corporation, some international regulators have taken action to revoke licenses from local FTX units.
According to a source, investigations are also being conducted by the Securities and Exchange Commission (SEC), the U.S. Justice Department, and the Commodity Futures Trading Commission (CFTC).
Although many have admitted they are exposed to FTX, either by holding tokens on the exchange or by owning FTX’s native token, FTT, which fell by about 94% last week, peers and partners in the cryptocurrency industry have quickly distanced themselves from FTX and established sound financial records.
This month, Bitcoin has dropped by 19%, and other tokens have also fallen, including those connected to the Solana blockchain, which was originally praised by Bankman-Fried.
Why aren’t prices already lower than they are? This is a valid question. The size of this drop may be the simple explanation, according to crypto liquidity provider B2C2, who wrote to customers, “Users are focusing on shifting assets off online marketplaces, at the short-term cost of price risk management.
The consequences have so far only affected cryptocurrency exchanges and dealers, but they are now being discussed in mainstream policy debates.
Francois Villeroy de Galhau, governor of the French central bank, called for an international regulatory response to economic instability brought on by the cryptocurrency market in a speech in Tokyo.
“I want to emphasize that because of this uncertainty, we urgently need to regulate crypto assets globally. The most recent events demonstrate to us that we cannot for a second “crypto winter” to increase uncertainty and financial instability.”
Government representatives from the U.S. Legislators and the Federal Reserve urged for more regulatory oversight of cryptocurrency finance.
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