‘They are trading against their customers’ – Sudden $200 billion crash in bitcoin and cryptocurrencies prompts dire FTX SEC warning

BitcoinBTC
and other major cryptocurrencies have fallen sharply this week, with traders reeling from the shock collapse of one of the world’s biggest exchanges (with fears that the “horror story” may just be underway).

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Bitcoin prices have crashed to lows not seen in two years, falling to just over $15,000 per bitcoin last night. The combined crypto market has lost around $200 billion in just one week – adding to a $2 trillion wipeout in the past year.

Now the chairman of the Securities and Exchange Commission (SEC), Gary Gensler, has warned bitcoin and crypto investors to “be careful” and “beware” of crypto exchanges – drawing parallels with the terra luna meltdown earlier this year.

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“The runway is running out,” Gensler said CNBC in an interview. “Investors around the world are getting hurt.”

This week, crypto exchange FTX, the world’s second-largest bitcoin and crypto exchange by some measures, stunned markets when it announced it was facing a liquidity crisis and suspended withdrawals — reaching out to bigger rival Binance for a lifeline.

The Bitcoin and cryptocurrency crash went from bad to worse after Binance said FTX’s problems are too big for it to fix, with reports suggesting Bahamas-headquartered FTX is staring at an $8 billion hole in its balance sheet .

“This is not like the New York Stock Exchange or NASDAQNDAQ
“, Gensler said. “It’s just a handful of lending platforms and a handful of so-called exchanges that mix. It is [a] toxic combination where they take people’s money, they lend against it, there’s not much disclosure, and then they trade against their customers.”

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The price of FTX’s FTT exchange cryptocurrency, designed to facilitate trading on the platform, has fallen 95% from its price this time last year, from a market cap of $7 billion to just $500 million.

Earlier this year, the collapse of the terrUSD algorithmic stablecoin and its backing coin luna, coupled with broader market weakness, triggered a wave of crypto company bankruptcies that reportedly set in motion the chain of events that led to FTX’s downfall.

This week, both the SEC and the Commodity Futures Trading Commission (CFTC) began investigating FTX regarding its handling of customer funds during this year’s cryptocurrency crash, it was reported by Reuters and Bloomberg.