By Geoffrey Smith
Investing.com -- Two more big cryptocurrency platforms suspended withdrawals on Wednesday, the latest in a widening circle of firms to be disrupted by the fall of Sam Bankman-Fried's FTX Group.
Genesis, one of the world's biggest exchanges which had said last week it would carry on operating as normal, said it was unable to honor a wave of withdrawal requests.
"FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests which have exceeded our current liquidity," Genesis said. It acknowledged that its exposure to Three Arrows Capital had already weakened it when the Hong Kong-based hedge fund collapsed earlier this year along with the Terra/Luna stablecoin network.
Its lending business, Genesis Capital, will also stop making new loans, pending an update next week. Genesis said it will search for fresh liquidity in the meantime. Genesis said last week that it had $175 million trapped on the FTX platform.
Genesis is a key partner of Gemini Earn, the crypto lending business of Bitcoin pioneers Cameron and Tyler Winklevoss. Withdrawals from the Earn program will also be suspended in the wake of Genesis' news, its parent Gemini Trust Co. said on Wednesday. Gemini said the news "does not impact any other Gemini products and services", asserting that the assets on its platform are fully backed.
The troubles of Genesis and Gemini show how the collapse of FTX, one of the world's top five crypto platforms, has sent shockwaves through the digital currency space, not only because so many platforms have assets trapped there, but also because its affiliated hedge fund Alameda Research was one of the biggest market-makers in so-called alternative coins. Its insolvency has led to a collapse in liquidity in other parts of the system, crippling their ability to earn transaction fees.
"The unraveling of the entire crypto house of cards continues," tweeted the economist and evergreen doom-monger Nouriel Roubini. "Endless domino effect that will lead in due time to the total collapse of this totally rotten corrupt criminal ecosystem."
Separately, Reuters reported on Wednesday that Bankman-Fried is to face a class-action lawsuit in the U.S., over suspected violations of securities law in offering yield-bearing products on its U.S. platform. Such products are typically viewed by U.S. regulators as securities, which means that companies need an operating license.
Reuters' report comes less than a day after revelations that U.S. and Bahamian authorities are talking about the possible extradition of Bankman-Fried from the Bahamas, where FTX's parent company was based and regulated, to face questioning. in the U.S.
The issue of potentially illegal securities offerings in the U.S. had already been flagged in October by Joseph Rotunda, the director enforcement at the Texas State Securities Board, at a time when FTX was still trying to buy some of Voyager Digital's assets out of its Chapter 11 bankruptcy process.
"FTX Trading, along with West Realm Shires Services Inc. dba FTX US ('FTX US'), may be offering unregistered securities in the form of yield-bearing accounts to residents of the United States," Rotunda had written. "These products appear similar to the yield-bearing depository accounts offered by Voyager Digital LTD et al."
FTX collapsed last week after its biggest rival, Binance, pulled some $584M in funding from the exchange, exposing the fact that its failed bets on cryptocurrency had made it insolvent.
The news put fresh pressure on the prices of even mainstream digital assets. Bitcoin fell 3.0% to $16,479 while Ether fell 4.7% to $1,208.19.