The collapse of crypto exchange FTX has tripped up casual day traders and professional investors alike.
Some 10% of the assets of a Multicoin Capital hedge fund are stuck at FTX, according to an investor letter viewed by The Wall Street Journal. It was able to pull out around 24% of fund assets held there before withdrawals were halted, the letter said. Earlier this month it told investors the fund was $1.2 billion in size.
The trading desks and lenders that serve institutional investors are in limbo, too. Cryptocurrency lender BlockFi Inc. has paused withdrawals and limited activity on its platform, saying FTX’s woes were preventing it from operating as usual. Another crypto lender,
said some $175 million from its derivatives business was frozen in an FTX trading account. Crypto market maker B2C2, which matches trades between other entities, has $5 million stuck on FTX, according to people familiar with the matter.
Crypto news site The Block earlier reported the Multicoin Capital letter to investors.
FTX’s journey from crypto white knight to pariah took just over a week, following questions about its relationship with founder
Sam Bankman-Fried
‘s trading firm, Alameda Research. Both Alameda and FTX filed for bankruptcy protection Friday.
Mr. Bankman-Fried earned investors’ trust with his frequent trips to Washington to lobby for more crypto regulation. Financial backing from some of Silicon Valley’s top venture-capital firms also lent credibility to the exchange.
But for some crypto firms that did business with the company, financial insight into FTX was almost as limited as it was for day traders.
There are few regulations binding players in the crypto market, meaning companies often aren’t required to present minimum information to trading counterparties. Firms also are based in myriad jurisdictions, sometimes with or without licenses, making it difficult to get baseline disclosures across the board.
“The things that we’re learning that may have gone on at FTX are really wild,” said Wes Hansen, director of trading and operations at crypto fund Arca. He said he routinely asks companies for financial information, and the level of detail provided varies widely.
“We always ask for everything we can get, but we have no way of really verifying out,” Mr. Hansen said.
For a report published last month ranking and assessing the risk of different crypto exchanges, research firm CryptoCompare asked firms for a wide set of information. FTX only provided it with public information from its website, said Jamie Sly, a marketing executive at CryptoCompare.
The scope of its public-facing policies led the research firm to rank it among the lowest-risk exchanges, he said. CryptoCompare removed FTX from its ranking this week.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com, Eliot Brown at Eliot.Brown@wsj.com and Peter Rudegeair at peter.rudegeair@wsj.com
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