FTX Contagion Revives Dreaded 2022 Crypto Knell – the ‘Withdrawal Halt’

In the crypto industry in 2022, the phrase “halting withdrawals” is like black smoke billowing out of a building. Damage is certain.

Technically it means that a crypto exchange or lender has gated customers from being able to get their money or digital tokens back – typically because there’s just not enough assets on hand to meet redemption requests. The likely upshot, though, is that the business is unlikely to recover easily from the destruction. In many cases, a bankruptcy filing is the next step.

Now, the of once-billionaire Sam Bankman-Fried’s crypto empire, including the FTX exchange and the crypto trading firm Alameda Research, has unleashed a fresh wave of crypto exchanges and lenders halting customers’ withdrawals over the past few weeks.

The collateral damage lengthens a from the dramatic collapse of the earlier this year, which accelerated or led directly to the failures of crypto firms including , and .

The contagion can spread swiftly. When one company suddenly refuses redemption requests, another company suddenly faces a liquidity crisis. unnerve investors, leading to further withdrawal requests, exacerbating the panic. Such is the pattern in digital-asset markets where there is no Federal Reserve or other central bank backstopping it all – as .

(CoinDesk counts 16 distinct withdrawal-halt announcements this year; the list is below.)

“For each player, you’re going to be in this situation where all of a sudden you have to manage how much information you want to reveal,” said Benoit Bosc, global head of product at crypto trading firm and liquidity provider GSR. “It might be more information than you actually want to reveal then.”

BlockFi, Genesis

BlockFi, a crypto lender, paused client withdrawals from its platform on Nov. 10, the “lack of clarity” around FTX’s current situation; it was two days after the FTX exchange on Nov. 8. BlockFi later its “significant exposure” to FTX.

Last week, Genesis, a big crypto financial firm, announced its lending unit had, citing “the extreme market dislocation and loss of industry confidence caused by the FTX implosion.” Earlier in the year, the business suffered after Three Arrows Capital’s failure. (Genesis is a CoinDesk sister company.)

Bosc cited Warren Buffett’s oft-repeated : “‘When the tide goes out, you see who is swimming naked.’”

Nicholas Colas, co-founder of the market analysis firm DataTrek Research, wrote in a note that the current crisis will take time to be resolved, and “until then this space will likely see more selling pressure.”

The following is a timeline of crypto firms’ withdrawal suspensions in the past few weeks:

Nov. 8: The FTX exchange , an FTX support employee said in the company’s official Telegram group.

Nov. 10: Crypto lender BlockFi from its platform, the “lack of clarity” around FTX’s current situation at that time. (In a Nov. 14 update, the lender its “significant exposure” to FTX.)

Nov. 11: FTX US crypto withdrawals. The same day, FTX Group companies – including FTX Trading and FTX US – filed for bankruptcy protection in the U.S.

Nov. 13: The Hong Kong-based crypto exchange AAX said it due to ​​the failure of an unidentified third party. The company said it had no financial exposure to FTX or its affiliates. On Nov. 23, AAX announced to .

Nov. 15: The Japanese crypto exchange Liquid, owned by FTX, on its Liquid Global platform “in compliance with the requirements of voluntary Chapter 11 proceedings in the United States.” The exchange on Nov. 20 that it had paused all forms of trading on its platform.

Nov. 15: Crypto lending platform SALT said it had on its platform due to FTX exposure.

Nov. 16: Crypto investment bank Genesis Global Trading’s lending unit , citing “in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion.”

Nov. 16: The Winklevoss brothers’ Gemini exchange said it was on its yield-earning Earn program as the exchange suffered a $485 million rush of outflows following Genesis’ announcement earlier in the day. Genesis Global Trading powered the Earn program for Gemini.

And here is a timeline of withdrawal suspensions from :

June 12: Celsius Network says that it is “pausing all withdrawals, swaps and transfers between accounts.” (Celsius on July 13.)

June 17: Babel says “redemptions and withdrawals from Babel Finance products will be temporarily suspended.”

June 23: CoinFLEX announces it is “pausing all withdrawals.”

July 1: Voyager Digital says it is “temporarily suspending trading, deposits, withdrawals and loyalty rewards.” (Voyager protection on July 5.)

July 4: Vauld says that it “made the difficult decision to suspend all withdrawals, trading and deposits.”

July 20: Zipmex says that it is “pausing withdrawals until further notice.”

August 2: announces that “deposit and withdrawal services are now suspended” after losing nearly five million in a .

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