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FTX Users May Be Cashing Out 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 | Mayor Bloomberg | fake images

Some FTX users seem to have found a way to get 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 was monitoring customer withdrawals. Most of the irregularities had to do with digital collectibles, known as NFTs. Patterns suggest “desperate” customers were turning to FTX users in the Bahamas for help, according to Argus.

The now bankrupt global cryptocurrency exchange only allows withdrawals in the Bahamas after stopping FTX liquidations in all parts of the world. The once $32 billion firm, partially based in Nassau, he said in a cheep said it had to facilitate withdrawals from the Bahamas to comply with local regulations.

High net worth users are paying astronomical prices for NFTs in FTX at a time when the broader market for crypto and digital collectibles has crashed. In one case, a collectible that was trading close to $9 three weeks ago sold for $10 million on Friday. Another NFT that was similarly priced a month ago sold for $888,888.88 this week.

“This NFT activity is highly irregular on a macro level when the overall NFT market is declining, both in value and volume, and in this specific case when there is limited trading in other FTX markets,” said Owen Rapaport, Co-Founder and CEO of Argus, a blockchain analytics firm that specializes in insider trading.

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an agreement with Bahamian users to pay a percentage of assets, and in return receive them once they have successfully withdrawn from FTX.

Elsewhere, non-fungible token trading volumes are down 97% from their all-time high, according to data from Dune Analytics. The price of bitcoin it is 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. While anyone can see where the money is moving, the identities remain anonymous. Argus was unable to say for sure who these clients were and that FTX appeared to have shut down irregular trading on Friday. There are still “offers” or offers to buy these now expensive collectibles, but no purchase orders have been executed since then.

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

Some Twitter users have reported similar irregularities this week. A popular crypto podcast host, who goes by the name Cobie, was one of the first to suggest that users were buying NFTs that Bahamian users were putting up for sale. He pointed to a wallet that withdrew $21 million worth of Tether cryptocurrency from FTX and sent it to an address that appeared to be in the Bahamas.

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

The company filed for Chapter 11 bankruptcy protection on Friday after a week of confusion. The exchange, run by 30-year-old Sam Bankman-Fried, has been accused of embezzling client funds and came close to being bought by his biggest rival after a liquidity crunch.

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