FTX users may be cashing out of bankrupt crypto exchange through Bahamas loophole

Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, at the Bitcoin 2021 conference in Miami, Florida on June 5, 2021.

Eva Marie Uzcategui | Bloomberg | Getty Images

Some FTX users seem to have found a way to move money out of the exchange through a backdoor in the Bahamas.

Analysis by data firm Argus found unusual trading patterns over the past five days as FTX hit client withdrawals. Most of the irregularities involved digital collectibles, known as NFTs. The patterns suggest that “desperate” customers were turning to FTX users in the Bahamas for help, according to Argus.

The now-defunct global cryptocurrency exchange is only allowing withdrawals in the Bahamas after stopping FTX clearing anywhere else in the world. The once-$32 billion company, partly based in Nassau, told a tweet said it had to facilitate withdrawals from the Bahamas to comply with local regulations.

High net worth users are paying astronomical prices for NFTs on FTX at a time when the broader crypto and digital collectibles market has collapsed. In one case, a collectible that traded near $9 three weeks ago sold for $10 million on Friday. Another NFT that had a similar price a month ago sold for $888,888.88 this week.

“This NFT activity is highly irregular at a macro level when the NFT market as a whole is declining, both in value and volume, and in this particular case when there is limited trading in other FTX markets,” said Owen Rapaport, co-founder and CEO of Argus, a blockchain analytics company specializing in insider trading.

Argus said this type of trading is likely an attempt by FTX users to access funds any way they can. One possible possibility, according to Rapaport, is that traders have made an agreement with Bahamian users to pay a percentage of the assets and in return receive them once they are successfully withdrawn from FTX.

Elsewhere, trading volumes for non-tradable tokens are down 97% from their record high, according to data from Dune Analytics. Its price bitcoin it’s down 75% from its all-time high a year ago.

These transactions are visible on the blockchain, which acts as a public ledger to track the movement of money. Although anyone can see where the money is moving, identities remain anonymous. Argus could not say for sure who those customers were and FTX appeared to have closed the irregular trading on Friday. There are still “tenders” or offers to buy these now expensive collectibles, but no purchase orders have been executed since.

FTX and its founder Sam Bankman-Fried did not immediately respond to CNBC’s request for comment.

Some Twitter users have cited similar irregularities this week. A popular crypto podcast host, owned by Cobie, was among the first to suggest that users buy NFTs offered for sale by Bahamian users. It pointed to a wallet withdrawing $21 million worth of Tether cryptocurrency from FTX and sending it to an address that appeared to be based in the Bahamas.

FTX has reportedly seen mysterious outflows since filing for bankruptcy protection. Reuters reported early on Saturday that between $1 billion and $2 billion of client funds had “disappeared” from the exchange, citing two people familiar with the matter. Meanwhile, data firm Elliptic estimates that $473 million has been moved from FTX in a suspected hack.

The company filed for Chapter 11 bankruptcy protection on Friday after a week of turmoil. The exchange, run by 30-year-old Sam Bankman-Fried, has been accused of misusing client funds and was close to being bought by its biggest rival after a liquidity crisis.

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