Most customers of FTX cipher exchange failed were institutions, but the effects of its collapse are still likely to reverberate across the sector and could affect small retail investors, MEPs have been told.
“What we’re hearing…is that the majority of funds on this platform came from institutional investors,” Ian Taylor, chief executive of industry group Crypto UK, told the Treasury select committee on Monday.
“Now there are a lot of regulated crypto exchanges in the UK taking retail money and they are hopefully ok at the moment. We haven’t seen anything. But…it’s a great situation fluid.
Even as Taylor spoke at the parliamentary hearing, Travis Kling, head of crypto hedge fund Ikigai, announced that his fund had become one of the first serious victims of FTX’s failure and was now in a desperate situation.
“We had a large majority of the hedge fund’s total assets on FTX,” Kling said. “By the time we went to retire on Monday [morning], we have gone out very little. We are now stuck alongside everyone else.
“There’s a lot of uncertainty about what’s going to happen next… At some point, we can better determine if Ikigai will continue or just go into slowdown mode.”
“It’s hard for me to imagine space recovering quickly from this ordeal,” Kling added. “Too many people have been burned too hard. It’s obvious now that the space hasn’t done enough to identify and evict the bad actors. We let far too many sociopaths become too powerful and we all pay the price.
However, during the Treasury committee hearing, the crypto industry rejected suggestions that were set to change a lot in the wake of FTX’s failure.
“I think it would be very wrong to tar the whole industry, by this one rotten apple, which turned out to be a very big apple,” said Tim Grant, head of Europe, Middle East and Africa at Crypto Investors Galaxy Digital. “We’ve lost $77 million at this point, which we don’t feel good about.
“But the users were mostly institutional, and equity investors were also some of the most sophisticated and important investors in the world. So there were a lot of very experienced eyes on that, and what that tells us is that he was a bad actor doing things behind very closed doors that we had no view as than larger group.
“It’s the same as Bernie Madoff and other cases like that, and they were in regulated industries.”
The collapse of the exchange was precipitated by Changpeng Zhao’s tweets, the head of Binance, the largest crypto exchange in the world. But Daniel Trinder, its vice president for government affairs, insisted the aim was not to bring down a competitor.
Zhao had tweeted that he was selling tokens that act like stocks in FTX, but Trinder said the motivation was purely “due to the realization that they weren’t worth the value.” Although this announcement started a process that ultimately brought down a competitor, “that was certainly not the intent behind the trigger for the sale at all.”
Trinder also pledged to provide the committee with internal documents detailing conversations between Binance and FTX in the run-up to the former. failed rescue offer.