FTX, a major cryptocurrency trading platform, is in danger of collapsing this week due to liquidity concerns and allegations about misused funds. This was followed by a large number of withdrawals from panicked investors. FTT, FTX’s native coin, fell in value, taking with it other coins like Ethereum and Bitcoin.

The effects of FTX’s collapse could have far-reaching consequences for the cryptocurrency market. FTX and cryptocurrencies could see plummeting prices, financial difficulties and increased exposure to FTT.

What do the events of this week mean for U.S. investors, major exchanges and future crypto regulations?

What happened with FTX?

These key points are

  • FTX was founded in 2019 by Sam Bankman-Fried, a CEO of cryptocurrency exchanges. FTT is the exchange’s own token. It was the fourth largest crypto exchange in terms of volume at Tuesday.

  • Alameda Research was also established by Bankman-Fried; CoinDesk published a Nov. 2 report on Alameda’s woes. According to the report, its largest assets are FTT worth billions of dollars.

  • Changpeng Zhao (CEO of Binance), tweeted Sunday that he planned to sell Binance’s stockpiles of FTT due to “recent revelations” referring to the Nov.2 CoinDesk report on FTX, and Alameda’s blurred funds. He compared FTX to the collapse of TerraUSD and LUNA in 2018, which sank the crypto market and cost investors billions. These moves aren’t usually announced publicly.

  • Zhao’s announcement caused a rapid drop in FTT’s price over the following day. There was growing suspicion that FTX did not have enough liquidity to support transactions and keep it afloat. Other coins, including BTC and ETH, also saw a decline in value. Bitcoin fell to a 2-year low. In a tweet, Bankman-Fried stated that Sunday’s withdrawals from the platform reached $5 billion.

  • Zhao, Bankman-Fried made a deal to allow Binance to purchase the non-U.S. FTX branch. Both exchange CEOs signed a nonbinding note of intent Tuesday. They essentially promised to rescue the failing exchange and prevent a bigger market crash.

  • Binance pulled out of the deal. Zhao tweeted within a day that Binance had completed its corporate due diligence and said it wouldn’t be acquiring FTX. Zhao said that news reports about “mishandled customer money” and “alleged U.S. Agency investigations” were factors in his decision. In a cryptic tweet on Twitter, Bankman-Fried seemed to refer to Zhao’s influence over FTX’s collapse. He wrote: “Well played; You won span>

  • Bankman-Fried stressed that the FTX U.S. branch was not affected by this crisis and posted a series of apologies on Twitter explaining FTX.US’s liquidity problems and promising more transparency. While he stressed that the U.S. branch was not affected by the crisis, FTX.US stated on Thursday that trading could be halted “in a couple of days span>

  • According to a Wall Street Journal report, Bankman-Fried stated to an investor that Alameda owes FTX approximately $10 billion. FTX then loaned Alameda money using customer deposits. According to the report, FTX only had $16 billion of assets before it made the loan. This means that it lent more than half its assets.

What does this all mean for U.S. customers

FTX’s Bankman Fried and Binance’s Zhao stressed that liquidity issues were affecting FTX International and not FTX.US. The American branch of the exchange is subject to greater regulation.

On Thursday, FTX.US posted a notice on its website warning users that trading may be halted at FTX.US in the coming days. The message advised users to close all positions and to withdraw as usual.

Thursday’s tweet by Bankman-Fried stated that the FTX.US stock exchange was “100% liquid,” which means users can withdraw their entire invested funds. Bloomberg reported Wednesday that he said to FTX.com investors that the company would have to file bankruptcy if it didn’t get a bailout. This could include FTX.US.

What does that mean for the U.S. cryptocurrency market?

FTX’s problems have had a profound impact on the U.S. cryptocurrency market:

  • Bitcoins’ price dropped below $16,000 Wednesday.

  • Ethereum fell below $1,100 Wednesday.

  • Solana dropped below $13 Wednesday, following CoinDesk’s report claiming that Alameda had a lot of it.

  • Tether was briefly depegged from U.S. dollars, falling by 3% on Thursday.

Cryptocurrency can be a risky investment so it should be taken seriously. You should limit high-risk investments to a very small percentage of your overall portfolio. Diversifying your cryptocurrency purchases can help reduce risk.

I am concerned about my crypto being kept with an exchange. What should I do?

You might consider moving your digital assets into a separate crypto wallet. Many exchanges permit you to transfer your digital assets to these wallets. These wallets can be online (on an independent platform) or offline (on thumb drives with additional security features span>

Which exchanges will be affected by the FTX crisis.

Investors are worried about their assets on other exchanges because of the high volatility and many customers who cannot withdraw funds from FTX. Here are the statements of major exchanges regarding their exposure to FTX or FTT.

  • Reuters reported that the Securities and Exchange Commission (or SEC) and Commodity Futures Trading Commission are looking into FTX’s handling of client funds. The investigation started several months ago.

  • Binance.US The U.S. branch, Binance.US posted on Twitter that Binance’s dealings in FTX would not impact U.S. users.

  • CEO Brian Armstrong stated that the platform does not have any material exposure to FTX or FTT.

  • Gemini Cameron Winklevoss, co-founder of the platform, tweeted that it has no material exposure for FTX or FTT.

  • Robinhood stated to NerdWallet, that Robinhood’s service does not have any direct exposure to Alameda or FTX entities. FTT cannot be traded on the platform. Robinhood holds 7.6% of FTX’s Bankman-Fried stake.

  • EToro informed NerdWallet that there is no corporate exposure to FTX and FTT on the platform. EToro users can trade FTT, but this is not available to U.S. users.

  • Kraken stated to CoinDesk, that the platform does not have any material exposure to FTX and Alameda.

  • Kris Marszalek, CEO of Crypto.com, tweeted that the company’s exposure to the “FTX melting down” was “immaterial”, amounting to less then $10 million in company capital. Although the platform suspended withdrawals of USDT and stablecoins USD on the Solana network, it did not explain why.

  • NerdWallet has not received any comment from TradeStation or Webull. BlockFi was to be acquired by FTX, and FTX.US had given BlockFi a $400,000,000 line of credit.

What will this mean for crypto regulation?

U.S. U.S. exchanges are subjected to greater regulation and reserve requirements that international exchanges. Recent events may have prompted more regulatory scrutiny. Senator Elizabeth Warren, D.Mass., posted Wednesday on Twitter that she called for stronger enforcement and urged the SEC to protect consumers.

The editor and author were not involved in any of the investments mentioned at the time this article was published.