In the crypto industry in 2022, the phrase “stop withdrawals” is like black smoke pouring out of a building. The damage is certain.
It technically means that a crypto exchange or lender has blocked customers from being able to get their money or digital tokens back – usually because there aren’t enough assets available to meet redemption requests. The likely outcome, however, is that the business is unlikely to recover easily from the destruction. In many cases, filing for bankruptcy is the next step.
Now, the rapid release of billionaire Sam Bankman-Fried’s crypto empire, which includes the FTX exchange and crypto trading firm Alameda Research, has followed a fresh wave of crypto exchanges and lenders that have halted customer withdrawals over the past few weeks.
The collateral damage extends the casualty list since the dramatic collapse of the Terra blockchain earlier this year, which accelerated or directly caused the failures of crypto firms including Celsius Network, Babel Finance, Voyager Digital and Three Arrows Capital.
The infection can spread quickly. When one company suddenly rejects redemption requests, another faces a liquidity crisis. Market jitters disturb investors, leading to more withdrawal requests, which increases panic. Such is the pattern in digital asset markets that are not all backed by the Federal Reserve or another central bank – as in the traditional financial system.
(CoinDesk has stopped 16 separate withdrawal announcements this year; the list is below.)
“For every player, you’re going to be in this situation where, suddenly, you have to manage the amount of information you want to disclose,” said Benoit Bosc, global head of product at crypto trading firm and liquidity provider GSR. “There may be more information than you want to divulge there.”
Crypto lender BlockFi paused client withdrawals from its platform on November 10, mentioning the “lack of clarity” regarding the current state of FTX; it was two days after the FTX exchange completely stopped customer withdrawals on November 8. BlockFi later admitted it had “significant exposure” to FTX.
Last week, Genesis, a major crypto finance firm, announced that its lending unit had suspended redemptions and new loan originations, citing “the extreme displacement in the market and the loss of confidence in the industry due to the pressure FTX.” Earlier in the year, the business suffered hundreds of millions of dollars in losses following the failure of Three Arrows Capital. (Genesis is a sister company of CoinDesk.)
Bosc quoted Warren Buffett’s oft-quoted quote: “’When the tide goes out, you see who’s swimming naked.’”
Nicholas Colas, co-founder of market analysis firm DataTrek Research, wrote in a note that it will take time to resolve the current crisis, and “until then this space is likely to see more selling pressure.”
Here’s a timeline of the withdrawal suspension of crypto firms over the past few weeks:
November 8: The FTX exchange has stopped customer withdrawals, an FTX support employee said in the company’s official Telegram group.
November 10: Crypto lender BlockFi has halted withdrawals from its platform, mentioning the “lack of clarity” regarding FTX’s current situation at that time. (In a Nov. 14 update, the lender acknowledged its “significant exposure” to FTX.)
November 11: FTX US has stopped processing crypto withdrawals. The same day, FTX Group companies – including FTX Trading and FTX US – filed for bankruptcy protection in the US
November 13: Hong Kong-based crypto exchange AAX said it had suspended withdrawals for 10 days due to the default of an unidentified third party. The company said it had no financial exposure to FTX or its affiliates. On November 23, AAX announced the termination of derivative positions.
November 15: Japanese crypto exchange Liquid, owned by FTX, has added both fiat and crypto withdrawals on its Liquid Global platform “in accordance with the requirements of voluntary Chapter 11 proceedings in the United States.” The exchange Announced on November 20 that he had suspended all types of trading on his platform.
November 15: Crypto lending platform SALT said it has halted all deposits and withdrawals on its platform due to the FTX disclosure.
November 16: The lending unit of crypto investment bank Genesis Global Trading has temporarily suspended redemptions and new loan initiatives, citing “in response to the extreme market dislocation and loss of industry confidence due to the FTX push.”
November 16: The Winklevoss brothers’ Gemini exchange said it was halting withdrawals on its yield-to-earnings program as the exchange had $485 million in outflows following the Genesis announcement earlier in the day. The Earn for Gemini program was led by Genesis Global Trading.
And here’s a timeline for withdrawal suspension from earlier this year:
June 12: Celsius Network says they are “pausing all withdrawals, exchanges and transfers between accounts.” (Celsius filed for bankruptcy on July 13.)
June 17: Babel says that “redemptions and withdrawals from Babel Finance products will be temporarily suspended.”
June 23: CoinFLEX announces that it is “pausing all withdrawals.”
July 1: Voyager Digital says it is “temporarily suspending trading, deposits, withdrawals and loyalty rewards.” (Voyager filed for bankruptcy protection on July 5.)
July 4: Vauld says he made “the difficult decision to suspend all withdrawals, trades and deposits.”
July 20: Zipmex says “withdrawals are on hold until further notice.”
August 2: ZB.com announces that “deposit and withdrawal services are now suspended” after losing nearly five million in a suspected hack.
August 8: Hodlnaut says it will be “stopping withdrawals, token swaps and deposits with immediate effect.”