FTX downfall causes down spiral in crypto prices in Seoul, upsets stock markets

[Provided by Reuters-Yonhap]

The downfall of the world’s third-largest crypto exchange FTX has caused a shockwave in the South Korean crypto market as at least 50,000 nationals are believed to have money in the exchange under U.S. investigation for mishandling of customer funds to bring about more upset to the Korean capital market, which is under liquidity strains from rapid rises in borrowing rates.

Binance, the world’s biggest crypto exchange, shied away from bailing out the smaller rival grappling with capital outflow. As much as $6 billion has been withdrawn from the exchange this week. Binance decided to bypass the SOS call, tweeting that issues FTX was facing were “beyond our control or ability to help.”

Changpeng Zhao, the CEO of Binance, also said the exchange would sell off its entire FTT holding, worth $530 million.

The news sent crypto prices crashing in Korea, one of the world’s largest investors of digital tokens.

According to Upbit, the largest exchange in Korea, Bitcoin was trading at 23,337,000 won ($17,005) as of midday Thursday after dipping to as low as 22,723,680 won, compared with 28 million won level on the previous day, and above 30 million won on Monday. Etherium went down to as low as 1,554,380 won from 2,206,797 won on the previous day and 2.5 million level on Monday.

Solana, which received direct investment from the battered FTX, crashed to as low as 17,803 won from above 50,000 won earlier in the week.

The financial damage is greater for FTX trading app users, estimated at around 54,000 in Korea based on the number of active monthly users compiled by mobile use data tracker MobileIndex.

FTX has been facing a surge of withdrawals over its trouble involving cash loans secured by its own tokens, and its unhealthy relationship with Alameda Research, the crypto exchange’s sister venture capital company.

Rumors have been circulating that Alameda Research bought FTX’s coin FTT early on, and FTX has boosted FTT price to generate paper profit, or unrealized capital gain in an investment, for Alameda Research. The venture capital firm raised debts based on the FTT-tied paper profit and invested the borrowed capital in coin ventures, many of which failed. Because Alameda Research made investments with debts raised using FTT as collateral, its failed investments come as liquidation of the digital tokens.

The problematic relationship surfaced last week through a report from CoinDesk, which suggested the balance sheet of Alameda Research is inundated with billions of dollars in FTT, digital tokens that cannot be readily converted to cash.

Binance began to dump FTTs upon the news and others followed suit.

FTT price plummeted 81.82 percent in a day. FTT is listed on Coinone, Gopax, and Korbit.

Korean capital markets are also upset. Kospi is 0.5 percent lower and Kosdaq 0.8 percent on Thursday. The Korean won fell 0.2 percent.

By Choi Keun-do and Cho Jeehyun