Washington, D.C. - U.S. Representative Stephen F. Lynch, Chairman of the Task Force on Financial Technology, released the following statement in response to cryptocurrency exchange FTX filing for bankruptcy:
“Last week we witnessed the sudden and extraordinary collapse of FTX - one of the world’s largest cryptocurrency exchanges. Despite its $32 billion valuation, FTX failed to maintain adequate cash reserves and ultimately, the company’s inability to honor an estimated $8 billion in emergency customer withdrawal requests precipitated a “bank run” on its assets and rapidly led to its bankruptcy filing. In the wake of FTX’s sharp downfall, Blockfi and SALT, both cryptocurrency lenders, have suspended customer withdrawals and BlockFi is reportedly “mulling” a bankruptcy filing, according to the Wall Street Journal. Destabilizing contagion effects on other cryptocurrency firms are feared to be imminent in a market that has already endured more than $2 trillion in losses over the past year.
"It has also been reported that between $1 billion to $2 billion in client funds are currently missing after FTX reportedly transferred $10 billion in customer deposits to its digital trading arm, Alameda Research, to engage in risky, highly-leveraged bets. These “vanished” funds presumably include the assets of unbanked consumers and consumers of color who have increasingly adopted cryptocurrency as a means of financial inclusion. Amid the serious questions raised by its business practices, FTX was also recently hacked for at least $400 million – with the company reporting that it was investigating irregular crypto wallet activity and shifting funds to offline storage.
“While FTX may be headquartered offshore, the circumstances surrounding its collapse strongly point to the need for developing thoughtful regulation to protect U.S. investors and preserve market stability in the crypto space. As Chairman of the Task Force on Financial Technology, I look forward to reviewing the results of investigations undertaken by U.S. and international regulators and I will continue to work with Chairwoman Waters to examine and address the critical oversight lapses that facilitated the collapse of FTX.”