Crypto

FTX Users Appear To Withdraw Money From Bankrupt Crypto Exchange Through Bahamian Loophole

Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, at the Bitcoin 2021 conference in Miami, Florida on June 5, 2021.

Eva Marie Uzcategui | Bloomberg | Getty Images

Some FTX users seem to have found a way to withdraw money from the exchange through a backdoor in the Bahamas.

Analysis by data firm Argus revealed unusual trading patterns over the past five days as FTX blocked client withdrawals. Most of the irregularities involved digital collectibles, known as NFTs. The patterns suggest “desperate” customers were turning to FTX users in the Bahamas for help, according to Argus.

The now bankrupt global cryptocurrency exchange only allows withdrawals in the Bahamas after halting FTX liquidations everywhere else in the world. The once $32 billion company, partially based in Nassau, said in a Tweeter said it had to facilitate withdrawals from the Bahamas to comply with local regulations.

Wealthy users are paying astronomical prices for NFTs on FTX at a time when the broader crypto and digital collectibles market has plunged. In one case, a collectible that traded at nearly $9 three weeks ago sold for $10 million on Friday. Another NFT that was similarly priced a month ago, sold for $888,888.88 this week.

“This NFT activity is highly erratic at the macro level when the NFT market as a whole is down, both in value and volume, and in this specific case when trading is restricted in other FTX markets,” said Owen Rapaport, co-founder and CEO of Argus, a blockchain analytics firm specializing in insider trading.

Argus said this type of trading is likely an attempt by FTX users to access money any way they can. According to Rapaport, a likely possibility is that traders have an agreement with Bahamian users to pay a certain percentage of assets and receive them back once they are successfully withdrawn from FTX.

Elsewhere, non-fungible token trading volumes have fallen 97% from their all-time high, according to data from Dune Analytics. The price of bitcoins is down 75% from its all-time high a year ago.

These transactions are visible on the blockchain, which acts as a public ledger to track the movement of money. While anyone can see where the money is going, identities remain anonymous. Argus could not say for sure who those clients were and that FTX appeared to have ended irregular trading on Friday. There are still “deals” or bids to buy these now expensive collectibles, but no buy orders have been filled since.

FTX and its founder Sam Bankman-Fried did not immediately respond to CNBC’s request for comment.

Some Twitter users reported similar irregularities this week. A popular crypto podcast host, who goes by the name of Cobie, was among the first to suggest that users were buying NFTs which are put up for sale by users in the Bahamas. He pointed to a wallet withdrawing $21 million from FTX’s Tether cryptocurrency and sending it to an address that appeared to be based in the Bahamas.

FTX reportedly saw mysterious exits after filing for bankruptcy protection. Reuters reported early Saturday that between $1 billion and $2 billion in client funds had “disappeared” from the exchange, citing two people familiar with the matter. Meanwhile, data company Elliptic estimates that $473 million was withdrawn from FTX in an alleged hack.

The company filed for Chapter 11 bankruptcy on Friday after a week of turmoil. The exchange, headed by Sam Bankman-Fried, 30, has been accused of embezzling client funds and was set to be taken over by its biggest rival after a liquidity crunch.

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