Between 12 November and 13 November, users withdrew a net $14m worth of the cryptocurrency ether and $39m worth of other tokens tied to the Ethereum network
Customers pulled funds from Crypto.com over the weekend after the company’s chief executive said the cryptocurrency exchange mishandled a roughly $400m transaction.
Crypto.com chief executive Kris Marszalek said on Twitter that the transfer was sent to the wrong type of account on another exchange. The transfer of a large chunk of ether, a popular cryptocurrency, took place on 21 October but came to light after Twitter users flagged the transfer as unusual, based on publicly available blockchain transaction records.
Concerns about Singapore-based Crypto.com spread across the internet over the weekend, with prominent digital-currency figures taking aim at the company. Cryptocurrency traders are on edge following the quick collapse of FTX, which went from one of the most trusted exchanges to bankrupt in the course of a week.
Changpeng Zhao, chief executive at Crypto.com’s larger peer Binance, appeared to question the nature of the transfers without naming the company, which may have fuelled 13 November’s withdrawals, according to crypto industry players. “If an exchange [has] to move large amounts of crypto before or after they demonstrate their wallet addresses, it is a clear sign of problems,” Zhao tweeted on 13 November.
The value of Crypto.com’s own cryptocurrency sank roughly 20% on 13 November from the prior 24 hours. It traded near 6 cents apiece.
Marszalek dismissed the concerns about Crypto.com, tweeting later on 13 November that the October transfers had “generated so much [fear, uncertainty and doubt] & speculation on Twitter” weeks later.
A spokesman for Crypto.com said that the platform was seeing higher levels of activity, noting that it had assets fully matching customer deposits. “Fluctuations in deposit and withdrawal activity do not affect our levels of service,” he added.
An outside analysis of Crypto.com’s public blockchain from Argus Inc., a blockchain analysis firm, showed that between 7 pm EST on 12 November and 5:30 am EST on 13 November, users withdrew a net $14m worth of the cryptocurrency ether and $39m worth of other tokens tied to the Ethereum network from Crypto.com. Over that same time, Crypto.com moved $33m from other wallets to meet customer demands, according to Argus.
It appeared that Crypto.com had enough funds to meet user withdrawals, said Owen Rapaport, co-founder of Argus.
Crypto.com is a midsize exchange. It has tried to raise its profile over the past year among retail investors. In late 2021, it sponsored the arena that is home to LeBron James and the Los Angeles Lakers, renaming it the Crypto.com Arena from the Staples Center. It also ran its first Super Bowl ad this year and is a global partner of Formula One.
The transaction that sparked concerns about Crypto.com involved the transfer of 320,000 ether — or roughly $400m worth of the token at the time — to a wallet linked to crypto exchange Gate.io on 21 October.
Over the weekend, Marszalek said on Twitter that the transfer was supposed to be a “move to a new cold storage address,” but was sent to an external exchange address.
“We have since strengthened our process and systems to better manage these internal transfers,” he said on Twitter.
A cold storage address is a type of wallet that is unplugged from the internet. It is considered the safest way to prevent digital currencies from being stolen or hacked.
Marszalek said the company had worked with Gate.io to return the funds back to its cold storage.
“It’s not looking good for these guys in general,” tweeted Adam Cochran, founder of venture-capital firm Cinneamhain Ventures, which invests in blockchain-related companies.
After FTX’s troubles began last week, a number of cryptocurrency exchanges, including Crypto.com, promised to publish proof of their reserves in the spirit of transparency. The audited proofs allow users to check that their own assets are covered by an exchange’s reserves.
Source: Financial News
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