FTX admits using client funds for risky trades

FTX admits using client funds for risky trades

Cryptocurrency exchange FTX has used client funds to fund risky trades by Alameda Research. Companies have an owner. This was the main reason for the collapse of the platform. This will be reported The Wall Street Journal (WSJ) citing their own source.

    Image source: Jonathan Borba / unsplash.com

Image source: Jonathan Borba / unsplash.com

Sam Bankman-Fried, CEO of FTX, told an investor this week that Alameda owes about $10 billion to FTX — the crypto exchange provided the company with loans from funds that customers had brought into the platform to participate in trading to participate. And Mr. Bankman-Fried called that decision wrong, according to a WSJ source.

On Monday, as the ensuing crisis loomed, Bankman-Fried assured his Twitter followers: “FTX has enough funds to cover the assets of all clients. We do not invest customer funds (not even in treasuries)”. The tweet was subsequently deleted, and on Thursday the businessman announced that Alameda Research was restricting trading operations.

In traditional markets, brokers are required to keep client funds separate from the firm’s own assets, and regulators have the power to penalize players for violating this rule. In 2013, for example, the US Commodity Futures Trading Commission fined brokerage firm MF Global $100 million for misusing client funds two years earlier – the company was also in an extremely difficult position because of risky investments. After years of bankruptcy proceedings, MF Global clients were able to get their funds back. But with FTX, which operates in the “cryptocurrency wild west” segment, investors do not yet have such guarantees.

One of Alameda’s strategies was arbitrage – buying cryptocurrencies in one place and selling them in another, for example, the company made money on the difference in bitcoin rates in the US and Japan. In addition, Alameda has invested in digital assets that offer remuneration at a certain interest rate — one of the company’s e-wallets alone has raised about $550 million since 2020. However, this is a risky investment, since such tokens initially increase in price, but when investors leave the “game”, they become cheaper.

About the author

Robbie Elmers

Robbie Elmers is a staff writer for Tech News Space, covering software, applications and services.

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