Several cryptocurrency companies, including FTX, have failed this year as Bitcoin and other digital currencies have collapsed in value.
FTX failed when it experienced the crypto equivalent of a bank run
The company tasked with locking down the assets of the failed cryptocurrency exchange FTX says it has managed to recover and secure $740 million (roughly Rs. 6,040 crore) in assets so far, a fraction of the potentially billions of dollars likely missing from the company's coffers.
The numbers were disclosed on Wednesday in court filings by FTX, which hired the cryptocurrency custodial company BitGo hours after FTX filed for bankruptcy on November 11.
The biggest worry for many of FTX's customers is they'll never see their money again. FTX failed because its founder and former CEO Sam Bankman-Fried and his lieutenants used customer assets to make bets in FTX's closely related trading firm, Alameda Research. Bankman-Fried was reportedly looking for upwards of $8 billion (roughly Rs. 65,330 crore) from new investors to repair the company's balance sheet.
Bankman-Fried "proved that there is no such thing as a ‘safe' conflict of interest,” BitGo CEO Mike Belshe said in an email.
The $740 million (roughly Rs. 6,040 crore) figure is from November 16. BitGo estimates that the amount of recovered and secured assets has likely risen above $1 billion (roughly Rs. 8,170 crore) since that date.
The assets recovered by BitGo are now locked in South Dakota in what is known as “cold storage,” which means they're cryptocurrencies stored on hard drives not connected to the Internet. BitGo provides what is known as “qualified custodian” services under South Dakota law. It's basically the crypto equivalent of financial fiduciary, offering segregated accounts and other security services to lock down digital assets.
Several crypto companies have failed this year as Bitcoin and other digital currencies have collapsed in value. FTX failed when it experienced the crypto equivalent of a bank run, and early investigations have found that FTX employees intermingled assets held for customers with assets they were investing.
"Trading, financing, and custody need to be different," Belshe said.
The assets recovered include not only Bitcoin and Ethereum, but also a collection of minor cryptocurrencies that vary in popularity and value, such as the shiba inu coin.
California-based BitGo has a history of recovering and securing assets. The company was tasked with securing assets after the cryptocurrency exchange Mt. Gox failed in 2014. It is also the custodian for the assets held by the government of El Salvador as part of that country's experiment in using bitcoin as legal tender.
FTX is paying Bitgo a $5 million (roughly Rs. 40 crore) retainer and $1,00,000 (roughly Rs. 81 lakh) a month for its services.
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