FTX says it is scrapping trades and withdrawals, moving digital assets to a cold wallet after a suspected $477 million hack

In this photo, the FTX website is displayed on a computer on November 10, 2022 in Atlanta, Georgia. Binance, the world’s largest cryptocurrency exchange, has agreed to acquire FTX, another major cryptocurrency exchange, in a hasty sale to prevent a liquidity crunch, known as a ‘Lehman Moment’ in the cryptocurrency industry.

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John Ray, FTX’s new CEO and head of restructuring, said the bankrupt crypto exchange is “in the process of decommissioning trading and withdrawal” and “transferring whatever digital assets can be traced to a new cold wallet custodian.” according to statement tweeted the company’s general counsel, Ryne Miller.

The announcement comes as the failed exchange investigates what it calls “unauthorized trading” that began within hours of FTX filing for Chapter 11 bankruptcy protection in the US

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The suspected hack was announced by an administrator on FTX’s Telegram Channel, according to blockchain analytics firm Elliptic, and was followed by a tweet from Miller that indicated the wallet’s movements were abnormal.

Data from Singapore-based analytics firm Nansen released overnight shows more than $2 billion in net outflows from the global FTX exchange and its US arm in the past seven days, of which $659 million occurred in the previous 24 hours.

Elliptic found that $663 million in various tokens was drained from FTX crypto wallets. Of this amount, $477 million was removed in the suspected theft, while the remainder is believed to have been moved to safekeeping by FTX.

Elliptic found that stablecoins and other tokens are quickly converted into ether and dai on decentralized exchanges, a technique the company says is commonly used by hackers to prevent their shipments from being intercepted.

“The manner in which these assets have been moved is highly suspicious,” said Tom Robinson, Elliptic’s chief scientist. “Very similar trading patterns have been seen with large-scale thefts in the past – where stolen assets are quickly exchanged on decentralized exchanges in order to avoid seizure.”

The new head of FTX said the exchange is coordinating with law enforcement and relevant regulators about the breach and is making “every effort” to secure all assets worldwide.

Miller, FTX’s general counsel, said the decision to push the digital assets into cold storage was intended to “mitigate the damage of observing unauthorized transactions.”

People who choose to own their cryptocurrency can store it “hot”, “cold”, or some combination of the two. A hot wallet is connected to the internet and allows owners relatively easy access to their coins so they can access and spend their crypto, while cold storage generally refers to crypto stored in wallets whose private keys are not are connected to the internet. The trade-off for convenience with warm storage is potential exposure to bad actors.

CNBC’s Rohan Goswami contributed to this report.

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