FTX says it’s scrapping trades and withdrawals, moving digital assets to cold wallet after alleged $477 million hack

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In this photo illustration, the FTX website is seen on a computer on November 10, 2022 in Atlanta, Georgia. Binance, the world’s largest cryptocurrency company, has agreed to acquire FTX, another major cryptocurrency exchange, in a rush sale to avoid a liquidity crisis, known as of “Lehman Moment” in the crypto industry.

Michael M. Santiago | Getty Images

John Ray, new CEO and Chief Restructuring Officer of FTX, says the bankrupt crypto exchange is “removing trading and withdrawal functionality” and is “transferring as many digital assets as possible to a new cold wallet custodian”. according to a statement tweeted by the company’s general counsel, Ryne Miller.

The announcement comes as the failed exchange investigates what it calls “unauthorized trading” that began hours after FTX filed for Chapter 11 bankruptcy protection in the United States.

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The alleged hack was announced by a Telegram Channel administrator of FTX, according to blockchain analytics firm Elliptic and was followed by a tweet from Miller stating that wallet movements were abnormal.

Figures from Singapore-based analytics firm Nansen were released overnight over $2 billion in net outflows from the global exchange FTX and its US branch in the past seven days, including $659 million in the previous 24 hours.

Elliptic discovered that $663 million of various tokens had been drained from FTX crypto wallets. Of that amount, $477 million was taken in connection with the alleged theft, while the rest was reportedly transferred to secure storage by FTX.

Elliptic has 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 loot from being seized.

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

FTX’s new chief said the exchange is coordinating with law enforcement and relevant regulators about the breach and is doing “everything possible” to secure all assets globally.

Miller, FTX’s general counsel, said the decision to place the digital assets in cold storage was “to mitigate damages when observing unauthorized transactions.”

People who choose to hold their own cryptocurrency can store it “hot”, “cold” or a combination of both. 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 on wallets whose private keys are not connected to the Internet. The trade-off for hot storage convenience is potential exposure to bad actors.

CNBC’s Rohan Goswami contributed to this report.

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