Confidence in the whole field of crypto assets has been shaken by the latest drama to hit the sphere. In the case of FTX Digital Markets exchange, the assets of the Bahamas-registered entity have been frozen. The business has reportedly filed for bankruptcy and its CEO's personal worth has been largely wiped out.

The Securities Commission of The Bahamas has frozen assets of crisis-hit cryptocurrency exchange FTX Digital Markets and related parties. The exchange has filed for bankruptcy in the US.

The Commission has also suspended the registration and applied to the Supreme Court of The Bahamas to appoint a provisional liquidator of FTX Digital Markets Ltd, it said in a statement last week. The business was domiciled in the Caribbean jurisdiction and run by founder Sam Bankman-Fried, who has reportedly stepped down as CEO.

A week ago, articles by CoinDesk and others, such as the Wall Street Journal, alleged that the balance sheet of Alameda, a crypto hedge fund owned by Bankman-Fried, held billions of dollars’ worth of FTX’s own cryptocurrency, FTT, which had been used as collateral in further loans. Such an arrangement would mean that a fall in the value of FTT would hurt both businesses. Crucially, as various media reports explained, FTT had no value beyond FTX’s longstanding promise to buy any tokens at $22, prompting fears that the whole institution had no basis. Matters took a turn for the worse when rival cryptocurrency exchange, Binance said it was pulling out of its deal to purchase FTX Trading. Binance said it had significant concerns about FTX. 

The saga has hammered the market for bitcoin and other cryptos. FTX CEO Sam Bankman-Fried’s estimated personal wealth collapsed by almost 94 per cent to $991.5 million in a single day. Bitcoin prices fell from $20,446 on Nov 7 to $15,710 on November 10 before recovering slightly on Friday. It fetched $16.000 around late morning in the UK. The falls and concerns about the financial credibility of certain players in the cryptocurrency space will exacerbate worries about the stability, or even viability, of this whole area. The story matters because wealth managers, along with other financial industry players, have been encouraged to look at the space. Digital assets, such as various types of tokens, are already affecting the industry.

The statement from the Bahamas’ authorities said Brian Simms, KC (Lennox Paton Counsel and Attorney-at-Law) has been appointed as provisional liquidator.

The powers of the directors of FDM have been suspended and no assets of FDM, client assets or trust assets held by FDM, can be transferred, assigned or otherwise dealt with, without the written approval of the provisional liquidator, the statement said.

“The Commission is aware of public statements suggesting that clients’ assets were mishandled, mismanaged and/or transferred to Alameda Research. Based on the Commission’s information, any such actions would have been contrary to normal governance, without client consent and potentially unlawful,” it said. “Since the unfolding of events involving FDM, the Commission has proactively dealt with the situation and continues to do so. The Commission determined that the prudent course of action was to put FDM into provisional liquidation to preserve assets and stabilize the company.”

The Commission is committed to working with the provisional liquidator to endeavor to obtain the best possible outcome for the customers and other stakeholders of FTX, the organization added.