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Crypto firms scramble to stop FTX collapse causing ‘cascade’ of chaos

Leading crypto exchanges are rushing to assure customers that their funds are safe following the collapse of FTX (Getty Images/ iStock)
Leading crypto exchanges are rushing to assure customers that their funds are safe following the collapse of FTX (Getty Images/ iStock)

Leading cryptocurrency exchanges are scrambling to reassure customers that their funds are safe following the collapse of FTX.

The CEO of Crypto.com downplayed concerns of a crypto market contagion during a Q&A session on YouTube on Monday, claiming that the exchange has a “tremendously strong balance sheet”.

Changpeng Zhao (CZ), who heads rival exchange Binance, announced that his company was forming an “industry wide recovery fund” aimed at assisting exchanges and other cryptocurrency platforms facing a liquidity crisis.

CZ said the fund was intended to “reduce further cascading negative effects of FTX”, adding, “crypto is not going away... Let’s rebuild.”

Roughly $200 billion has been wiped from the global crypto market over the last seven days in the wake of the downfall of FTX, which filed for bankruptcy on Friday after failing to reach a rescue deal with Binance.

Bitcoin has seen the heaviest losses in terms of overall value, with its market cap shrinking by roughly a quarter from $400 billion to around $300bn.

Beyond the market crash, the crisis has led to broader fears about cryptocurrency exchanges and custodians, and whether they can handle a surge in withdrawals that brought an end to FTX.

Crypto.com CEO Kris Marszalek looked to refute such fears during his YouTube livestream, while also addressing concerns that Crypto.com had accidentally sent more than $400 million worth of ethereum (ETH) to the wrong address.

“The funds were at no risk of being lost,” Mr Marszalek said. “The system would not allow us to send money somewhere it can’t be recovered.

“Our platform is performing business as usual. People are depositing, people are withdrawing, people are trading, there’s pretty much normal activity just at a heightened level.”

Both crypto bosses have welcomed the prospect of increased scrutiny and regulation for the cryptocurrency space, saying it will help provide guidance for businesses and improve consumer trust.

Other industry figures have described the FTX fall-out as a wake-up call for financial services regulators.

“The lack of a standardised international regulatory framework, allowing larger players such as FTX to take liberty, ultimately puts consumers and their finances at risk,” Anastasia Demtriou, general counsel at the fintech firm IFX Payments, told The Independent.

“As FTX’s demise plays out, it is my hope the industry understands the need for a proper regulatory framework which spans globally. The complexity and scale of operations at FTX and other affiliated companies means that regulators will need to be collaborative, cautious and innovative in their methodology in order to protect consumers.”