Aftershocks from last week’s massive earthquake in the trillion-dollar crypto industry continued to be felt on Monday.
Digital currency prices fell again as the crisis gripping the market deepened over the weekend. Bitcoin, the world’s largest crypto, is down about 65% so far this year. It was trading around $16,500 on Monday, according to CoinDesk, and analysts believe it could drop below $10,000 in the coming days.
Meanwhile, the world’s second most valuable cryptocurrency, Ethereum, is not faring much better. It traded at $1,231.53 on Monday after falling over 20% over the past week, CoinDesk data showed.
The plunge comes as investors continue to grapple with the stunning implosion of FTX Group, one of the largest and most powerful players in the industry.
Some industry insiders said the company’s demise sparked a “Lehman moment,” alluding to the investment bank’s collapse in 2008 that sent shockwaves around the world.
Not only did the episode shatter confidence in the crypto industry, but it will encourage global regulators to tighten the screws. Some of the biggest names in the industry said they would welcome the review if it helped restore confidence in the industry.
There is “a lot of risk,” said Changpeng Zhao, who runs crypto exchange Binance. “We’ve seen things go crazy in the industry over the past week so we need some regulation, we need to get this right,” he added.
The Binance CEO, known as CZ, was speaking at a conference in Indonesia on Monday. He said last week that comparing the current crypto turmoil to the 2008 global financial crisis is “probably an accurate analogy.”
Zhao was a key figure in the events surrounding FTX’s demise. Binance had recently entered into an interim bailout deal with FTX week, but that transaction fell apart almost immediately.
FTX continued its downward spiral over the weekend after filing for bankruptcy on Friday. And another big name in the industry admits it mishandled funds, further spooking investors.
This is how things have developed over the past few days, showing that the crisis has only just begun.
FTX moved its headquarters from Hong Kong to the Bahamas last year, with former CEO Sam Bankman-Fried calling it “one of the few places that has established a comprehensive framework for crypto” at the time.
On Sunday, authorities in the Bahamas said they are investigating possible criminal wrongdoing related to the company’s implosion.
“Given the global collapse of FTX and the temporary liquidation of FTX Digital Markets Ltd. A team of financial investigators from the Financial Crimes Investigation Branch is working closely with the Bahamas Securities Commission to investigate whether there has been any criminal wrongdoing,” the Royal Bahamas Police said in a statement.
It is not clear what specific aspect of the rapid collapse of the FTX authorities is being investigated.
Bankman-Fried, the 30-year-old founder of the exchange, was one of the faces of the crypto industry that once amassed a combined fortune of $25 billion that has since disappeared. He was viewed as the white knight of the crypto world, having previously stepped in to rescue companies struggling following the collapse of the TerraUSD stablecoin in May.
FTX, backed by elite investors like BlackRock and Sequoia Capital, quickly became one of the largest crypto exchanges in the world. The collapse followed a decision to lend billions of dollars worth of client assets to fund risky bets by Alameda, FTX’s crypto hedge fund, the Wall Street Journal reported Thursday.
The Bahamas probe came a day after the bankrupt exchange announced it would launch its own probe.
On Saturday, FTX said it was checking for stolen crypto assets and has since taken all of its digital assets offline. Crypto risk management firm Elliptic said while the theft was unconfirmed, it appeared that $473 million in crypto assets were stolen from FTX.
In a tweet early Saturday, FTX General Counsel Ryne Miller said the company had “taken precautionary steps” and moved all of its digital assets to cold storage. The process was “sped up” Friday night “to mitigate the damage of observing unauthorized transactions,” Miller said in a tweet.
Miller said late Friday that FTX is “investigating anomalies” in relation to movements in crypto wallets “related to the consolidation of FTX balances between exchanges.” The facts are still unclear and the company will share more information as soon as possible, he added.
As scrutiny of the big players in the crypto world mounts, another major mishap alarmed investors over the weekend. Singapore-based Crypto.com admitted to accidentally transferring more than $400 million in Ethereum to the wrong account.
Its CEO, Kris Marszalek, said on Twitter on Sunday that the transfer of 320,000 ETH three weeks ago was made to a corporate account at rival exchange Gate.io, rather than to one of its offline or “cold” wallets.
And although the funds have been reclaimed, users are withdrawing from the platform, fearing the same outcome as FTX.
“Since then we have strengthened our processes and systems to better manage these internal transfers,” Marszalek tweeted on Sunday. According to CoinDesk on Monday, the platform’s native token is down over 20% in the past 24 hours.
At the Bali conference, Binance CEO Zhao signaled that regulating the industry won’t be easy.
The “natural response of authorities is to adopt regulations from traditional banking systems…but crypto exchanges operate very, very differently than banks,” he said Monday.
“It’s very, very normal for a bank to move user assets for investment and try to generate returns,” he explained. When a crypto exchange works this way, it is “almost guaranteed to go under,” he said, adding that collectively the industry has a role to play in protecting consumers.
“Regulators play a role…but no can can protect a bad player,” he said.
– Matt Egan, Ramishah Maruf and Allison Morrow contributed to this report.