FTX Australia calls in administrators and tells customers not to execute trades

The cryptocurrency exchange’s local business has told customers not to deposit funds or execute any trades until further notice.

The crisis roiling one of the largest cryptocurrency exchanges in the world has landed in Australia, with FTX’s local business calling in administrators on Friday.

FTX, one of the central players in the sector, has been in turmoil ever since customers began deserting the exchange and pulling out their holdings amid concerns it was running out of capital.

The situation worsened in the week after Binance, the largest exchange by volume, reversed course and decided not proceed with a non-binding offer to acquire its rival after reviewing FTX accounts. The issues “are beyond our control,” Binance said in a statement earlier this week.

FTX Australia was placed into administration by its three person board, which includes the exchange’s founder Sam Bankman-Fried. His wealth – once $US26bn ($39bn) – has been slashed to just $US991.5m by the crisis.

KordaMentha said it had been called in “to protect the interests and assets of Australian clients”.

FTX Australia customers, and those of its FTX Express subsidiary, have been prevented from depositing funds or executing trades until further notice.

“We are working cooperatively with the directors to confirm the status quo and will report back to all stakeholders,” said KordaMentha’s Scott Langdon.

“We appreciate the uncertainty this creates for customers of FTX and will report to all customers as a matter of urgency.

Mr Bankman-Fried has been attempting to raise funds from investors to repay customers, with losses expected to be at $US8bn.

“For the next week, we will be conducting a raise,” Mr Bankman-Fried wrote in a message on FTX’s Slack channel, according to The Wall Street Journal.

“The goal of this raise will be first to (do) right by customers; second by current and possible new investors; third of all you guys.” He added that his own interests would be last in line.

The WSJ later reported that FTX had lent billions of dollars of customer assets to fund risky bets at its affiliated trading firm, Alameda Research. The Securities and Exchange Commission is investigating the liquidity crunch.

Mr Bankman-Fried, 30, is not the only FTX investor swept up in the deteriorating situation. At its peak, the exchange was valued at $US32bn, and attracted backing from venture capital group Sequoia Capital, the Ontario Teachers’ Pension Plan, SoftBank and several other major parties. Sequoia said it would mark down its $US214m investment to zero.

FTX’s woes have sent shockwaves throughout the industry.

Josh Gilbert, market analyst at investment platform eToro, described the situation as a black swan event for the crypto sector and predicted further pain to come – at least in the short term.

“Very similar to the collapse of Luna or Celsius Network earlier in the year, these types of unanticipated events show that it’s an asset class that’s still maturing,” he said.

“ It will likely take time for general investor sentiment to return, and it will no doubt impact many investors both directly and indirectly,” Mr Gilbert added.

“The bottom line is that bitcoin and other cryptoassets will likely remain under pressure until we see more clarity around this issue.

However, the industry will learn from some of the major blunders we have seen this year, which will almost certainly lead to more transparency across the space long-term, helping to bring more accountability and trust into the space. It’s likely the crypto space will see more scrutiny from regulators, which is understandable given recent events.”

The price of bitcoin has fallen 15.6 per cent in the last week, and it is 63.7 per cent lower than at the start of the year, buffeted by rising interest rates and uncertainty in a sector which has seen a string of collapses in recent months.

Ethereum, another cryptocurrency, is down 66.3 per cent since December 31 and around 19 per cent in the last week alone.

Mr Bankman-Fried, in a series of posts on Twitter, said he was responsible and “clearly failed”.

“In any scenario in which FTX continues operating, its first priority will be radical transparency – transparency it probably always should have been giving. Giving as close to on-chain transparency as it can: so that people know *exactly* what is happening on it,” Mr Bankman-Fried wrote. “All of the stakeholders would have a hard look at FTX governance. I will not be around if I’m not wanted.”

The collapse of FTX has made it difficult for other major players in the sector to operate. On Friday, crypto lender BlockFi said it could not conduct business and normal and would be limiting activity.

“We are shocked and dismayed by the news regarding FTX and Alameda … Until there is further clarity, we are limiting platform activity, including pausing client withdrawals,” BlockFi said.