The market for digital currencies is in crisis, and now the next crypto exchange has been hit: On Tuesday morning, the Bitfront crypto exchange announced that it would no longer be accepting new customers and would no longer be processing credit card payments.
In a few months, the business will even be completely discontinued.
At the same time, Bitfront emphasized that there was no connection whatsoever with the affairs of certain competitors who were accused of misconduct.
Editor in Business.
Follow I follow
As a reminder: A few weeks ago, the crypto exchange FTX collapsed spectacularly.
At that time, the largest crypto exchange Binance announced that it would sell all holdings of FTX's own cryptocurrency FTT - worth just over $500 million at the time.
This was critical insofar as FTX secured customer funds precisely with its own cryptocurrency.
Now several effects came together: The business with customer deposits was highly risky anyway due to the poor situation on the market.
At the same time, the security – i.e. your own cryptocurrency – was worth significantly less.
This led to investors withdrawing their money massively, which in turn led to withdrawals that FTX could no longer afford - a vicious cycle.
Therefore, the crypto exchange had to file for bankruptcy.
A billion dollars gone
Under the new CEO, John Ray, it was found that a total of $1 billion in customer funds simply disappeared.
Where to is still under investigation.
At least FTX's remaining employees are now getting their pay back, as Ray recently announced: "I am pleased that the FTX Group...is able to resume normal cash payments of salaries and benefits to our remaining employees worldwide," he said.
This includes cash payments both pre-bankruptcy and post-bankruptcy, subject to the limits set by bankruptcy court orders.
In the meantime, BlockFi, the next company from the crypto cosmos, has gone bankrupt.
It has filed for Chapter 11 bankruptcy, which allows a company to continue in business while a plan to pay back creditors is worked out.
FTX is also one of the company's top creditors, according to BlockFi's bankruptcy filing, with a loan of over $275 million.
In the case of claims against FTX, however, delays are to be expected due to their own bankruptcy.
Crypto lenders are hitting it hard
BlockFi is a so-called crypto lender.
It has advertised that users can earn interest on cryptocurrencies and borrow money by depositing cryptocurrencies as collateral.
In the simplest case, the customer transfers a bitcoin and receives interest in return, which can change almost daily depending on the market environment.
Crypto lending is more complicated: Here, for example, the customer owns a bitcoin that is worth $16,000.
At the same time, however, he urgently needs $10,000 to invest in other digital currencies, for example.
However, the customer does not want to sell his bitcoin because he expects further increases in value.
In this case, he could transfer his bitcoin to BlockFi and request a loan.
He then pays interest on this, and the loan is secured in this way.
This business is highly risky, and accordingly there is a fear that other companies like BlockFi could also be affected, which could then go bankrupt.