Is cryptocurrency market crash imminent? Over $600 million stolen from FTX, and Alameda using FTX customer funds for risky trades

In the not-so-distant past, many experts expected that cryptocurrencies could be included in portfolios of large investors. But that was before the bankruptcy of the FTX crypto exchange and the new scandals surrounding it. Now, big investors are disappointed in cryptocurrencies, and the future of these currencies is already in doubt.

The problems FTX has faced since its bankruptcy have only made things worse. The crypto exchange was recently hacked – over $600 million was stolen from it. What's more, it was discovered that Alameda, a company owned by FTX owner Sam Bankman-Fried, was using FTX customer funds for risky transactions.

FTX hacked: Over $600 million stolen

Unknown hackers recently hacked the FTX crypto-exchange, infecting applications and the website with malware. More than $600 million in cryptocurrency was missing from the wallets of the bankrupt crypto-exchange.

According to Coindesk.com, many FTX users reported $0 left in their FTX.com and FTX US wallets. Various Ethereum tokens, as well as Solana and Binance Smart Chain tokens, were removed from FTX's official wallets and moved to decentralized exchanges such as 1inch.

The hack affected both the international version of FTX.com and the US version of FTX US. Moreover, the cryptocurrency community speculates that the hack was organized or coordinated by someone in Sam Bankman-Fried's own inner circle: the sophisticated and coordinated actions of the attackers may point to FTX employees.

Alameda used FTX customer funds

Alameda Research, owned by the same Sam Bankman-Fried, used FTX customer funds. According to cnbc.com, this was done without the knowledge of investors, auditors, employees, and even more so, the clients themselves, to whom these funds belonged.

With $16 billion in customer assets at FTX, the crypto exchange was using more than half of those customer funds to fund Alameda's risky trades.

Many experts believe that the rescue plan to save Alameda significantly accelerated FTX's bankruptcy – if not one of its main causes. Back on Nov. 9, Coin Metrics head of research and development Lucas Nuzzi wrote several tweets stating that in the midst of the crypto-winter in the second quarter of this year, FTX used a pledge of millions of FTT tokens to save Alameda Research. And that's what brought the exchange to the brink of collapse.

Back then, the exchange was only suspected of misusing customer deposits. But now the WSJ argues that this is a reliable fact.

Moreover, in addition to FTX, Alameda owes at least $1.5 billion to other creditors. At the same time, most of the loans were secured by the FTT, the exchange rate of which has collapsed in recent days. 

Binance has stopped accepting FTT deposits

Against the backdrop of the situation in the crypto market, cryptocurrency exchange Binance stopped accepting FTT token deposits on its platform. Moreover, Binance CEO Changpeng Zhao, urged rival exchanges to follow suit.

"(Binance) has stopped FTT deposit, to prevent potential of questionable additional supplies affecting the market. We will monitor the situation," the head of Binance wrote on Twitter.

Major investors disappointed in cryptocurrencies

All of these problems have led to major investors becoming disillusioned with cryptocurrencies. According to Bloomberg, while there remain many adherents to these currencies in the industry, many professional money managers argue that the losses are too great and the market structure of cryptocurrencies is too risky, and then they are unlikely to be considered as a means of portfolio diversification or digital gold.

"What's become clear is it will not find a home in institutional asset allocation," says Hani Redha, a multi-asset manager at Pinebridge Investments in London. "There was a period when it was being considered as a potential asset class that every investor should have in their strategic asset allocation and that’s off the table entirely."

Interestingly, this is not the first cryptoscandal: there have been the TerraUSD collapse, the Celsius bankruptcy, and many other problems in the past, but none of them had such a devastating effect on the market as the news that FTX (which until recently was considered one of the most successful companies in the market) was so unreliable and could go bankrupt in a matter of days.