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Crypto struggles as concerns about asset safety swirl post-FTX

By Geoffrey Smith

Investing.com -- Cryptocurrency prices weakened again on Monday as fears over deposit safety, following the collapse of exchange FTX, continued to prompt withdrawals and flight to the relative safety of fiat currency.

By 10:14 ET (15:14 GMT), Bitcoin was down 2.5% at $16,141, having earlier dipped below $16,000 again amid a general loss of confidence in the crypto space. Ethereum, meanwhile, traded down 3.2% at $1,138. Altcoins, which have suffered from big drops in liquidity since the loss of market-making activity by FTX's affiliated hedge fund Alameda Research, were generally down by more, with Solana down 6.7% and Dogecoin down another 7.1%.

The market cap of the world's biggest stablecoin Tether - a rough proxy for net flows into and out of the crypto space - fell meanwhile to a three-month low of $65.8 billion.

Overnight, there had been fresh evidence of the wholesale loss of governance and risk controls at FTX, as part of the token haul drained from FTX's accounts by a mystery exploiter was moved to other blockchains in an attempt to get them beyond the reach the people administering Sam Bankman-Fried's defunct empire.

According to blockchain analysis by Arkham Intelligence, the hacker transferred 15,000 ether - worth some $17M - into renBTC, a token on the Ethereum blockchain that can be redeemed for Bitcoin. Observers noted that a number of developers behind the REN network had joined Alameda in 2021, and that the move strengthened suspicions that the exploiter was a former company insider.

The amount transferred late on Sunday was a mere fraction of the total sum - equivalent to over $600M - that went missing from FTX-affiliated wallets within two days of it filing for chapter 11 bankruptcy in the U.S. Arkham analysts noted that "the attacker is limited by the liquidity of renBTC, so cannot bridge lots at once."

FTX had over 1M creditors - including depositors - at the time of its collapse, and initial filings from its bankruptcy procedure have indicated that its administrators face a gargantuan task in making them whole. New CEO John J. Ray said in his 'day 1' filing that he had secured less than $1B in assets, while estimates of its liabilities run to $10B or more.

While FTX and Alameda appear to have lost most of their money on altcoins, the fear of contagion has reached even the most established digital currencies, reflecting the inability, or unwillingness, of some of the sector's biggest names to provide proof of their assets.

Grayscale Bitcoin Trust (OTC:GBTC), the world's largest publicly-traded Bitcoin fund, refused to issue a cryptographic 'proof-of-reserves' statement last week citing "security concerns". The market has responded by applying a bigger discount than ever - over 40% - to the assets Grayscale claims to hold not just in its Bitcoin fund, but also in its Ethereum fund.

Grayscale says it holds around 635,000 Bitcoin in its fund, worth over $10B. Any run on the fund comparable to previous runs seen this year on tokens such as the Terra/Luna stablecoin or FTX's native token FTT would likely result in sharp declines for the world's biggest digital asset.

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