FTX crypto exchange saw $6 billion worth of withdrawals in 72 hours after Binance cancelled their purchase deal and the US launched a probe against FTX for trading violation, said a report on Friday.
Meanwhile, FTX has blocked further withdrawals from the exchange, fearing bankruptcy.
The report titled "The FTX Effect," published by CREBACO, a blockchain research, intelligence, and rating company, said FTX is unable to plug a shortfall of $8 billion.
The Justice Department and the Securities and Exchange Commission (SEC) are probing if FTX has violated “securities laws related to segregating customer assets and trading against customers," according to the report.
How Could It Impact the Crypto Market?
Bitcoin fell by 25 per cent following the negative developments surrounding FTX.
BTC was trading at $15,588 on November 10, 2022, a significant drop from its average price of $18,000 it had held for the past six months. The fallout of the purchase agreement between FTX and Binance has also taken a toll on its price.
"The world's second-largest exchange is filing for bankruptcy; thousands of users have lost their net worth because Binance and FTX were considered the best-trusted exchanges, the report said, adding that it will have a negative impact on the crypto industry for years.
FTX’s token FTT fell by 90 per cent in a single day after its bankruptcy news hit the market.
"Since the Luna UST collapse, stablecoins tend to lose their peg during bearish moments, and it's happening again since BTC broke $18,000, a 6-month support level," the report said.
Amid these developments, the cryptocurrency market fell 20 per cent or $200 billion in a week to $824 billion from $1.02 trillion. Consequently, various OTC exchanges and projects were severely affected. For example, BlockFi, an OTC exchange, has halted withdrawals after it became “difficult to conduct business as usual due to the FTX effect”.
How Big Was FTX?
According to the CREBACO report, it was one of the world’s largest crypto trading exchanges, which handled some 11 per cent of the $2.4 trillion in derivatives trade each month.
The company raised $1.5 billion in private funding last year, raising its valuation from $1.2 billion to $25 billion. In January this year, its valuation rose to $32 billion after bagging $500 million in a funding round. "Eager to become a household name, FTX is spending millions of dollars on marketing, signing up celebrity brand ambassadors, including Tom Brady, David Ortiz, and Kevin O'Leary, as it goes after US customers with a separate entity, FTX US, valued at $8 billion," said the report.