FirstFT: Crypto carnage | Financial Times

The chief of the world’s largest crypto exchange Binance has said no one can be protected from a “bad player” following the collapse of Sam Bankman-Fried’s FTX.

Speaking at a meeting of business leaders on the island of Bali in Indonesia where the G20 summit of world leaders is being held, Changpeng Zhao called for more regulation of the crypto finance industry.

Zhao, who is known as “CZ” in the crypto industry, did not specifically name his former arch-rival but talked about what the collapse of FTX meant for the $1tn cryptocurrency industry.

“To be very frank, if a guy is very good at lying and is very good at . . . just pretending to be what he’s not, [if] somebody wants to violate the law, the law is not going to prevent that,” said Zhao.

Digital asset exchanges are rushing to reassure clients that their funds are safe after the collapse of FTX on Friday.

Binance as well as smaller rivals including Crypto.com, OKX and Deribit, have vowed to publish proof that they hold sufficient reserves to match their liabilities. Coinbase, the US-listed exchange, has also sought to distance itself from the crisis.

The sudden collapse of FTX and Bankman-Fried’s trading shop Alameda Research, once viewed as pillars of the industry, has severely eroded confidence in the digital asset market. FTX had less than $1bn in easily sellable assets against $9bn in liabilities before it went bankrupt, the Financial Times reported on Saturday.

FTX’s general counsel Ryne Miller said over the weekend that FTX was “investigating abnormalities with wallet movements related to consolidation of FTX balances across exchanges”.

Elliptic, a blockchain forensics company, said that there were initial indications that $473mn in cryptoassets had been stolen from FTX late on Friday night.

The announcements stoked fears that FTX had been hacked as staff raced to secure billions in digital tokens that will ultimately be used to pay back creditors in bankruptcy proceedings at the cryptocurrency group, which was only recently valued at $32bn.

The FTX implosion has thrown a spotlight on two US accounting firms that the cryptocurrency exchange said it had used to audit its books.

It has also raised questions about political financing linked to the crypto industry. Before FTX’s implosion, Sam Bankman-Fried had emerged as the second-largest donor to Democrats after George Soros, spending $36mn during the midterm election campaign. He also became one of the most prominent crypto representatives in Washington, supporting digital asset legislation and hiring former regulators as advisers.

One hedge fund has admitted to being caught off-guard by the sudden FTX collapse, as well.

• Go deeper: Changpeng Zhao’s offer to rescue his arch-rival will go down “as one of the greatest corporate attacks that has ever happened”, according to one industry observer, and tips the balance of power in the $1tn industry in favour of the Binance chief.

Five more stories in the news

1. Chinese property stocks soar Shares in some of China’s biggest real estate companies rose sharply today as the publication of a 16-point plan to support the debt-ridden sector was interpreted as a crucial pivot by Beijing that could spark a revival. The measures include extending a year-end deadline for lenders to cap their ratio of property sector loans.

2. Northern Trust told to improve after pension turmoil UK regulators have ordered the US custody bank to improve its operating systems after it was overwhelmed from processing margin calls during the recent pension fund crisis, people familiar with the situation told the Financial Times.

3. EY timetable slips for partner votes on break-up plan Voting by the Big Four accounting firm’s UK and US partners on a radical break-up plan is set to be delayed to next year as its leaders try to hammer out legal documents governing how the split will work.

4. Turkey blames terrorist group for bomb attack Turkey said Kurdish militant group PKK and its US-backed affiliates in Syria were behind yesterday’s bomb attack that ripped through one of Istanbul’s busiest streets, killing six people and injuring another 81. A local news channel today said that the suspected perpetrator of the attack was a Syrian-origin woman who had “confessed” her links to the PKK/PYD.

5. Democrats retain control of US Senate after win in Nevada The Democrats retained their majority in the US Senate after Catherine Cortez Masto won re-election in Nevada. Cortez Masto’s victory gave Democrats their 50th seat out of 100, enough to hold the majority given that Kamala Harris, the vice-president, can cast tiebreaking votes. Attention now turns to the December 6 run-off election in Georgia where incumbent Democrat Raphael Warnock is hoping to beat his Trump-backed Republican rival Herschel Walker, the former American football star.

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The day ahead

Joe Biden and Xi Jinping meet The US president and his Chinese counterpart meet in person for the first time as leaders on the sidelines of the G20 summit in Bali. The high-stakes encounter is the most significant test yet of whether the two sides can reverse a dramatic decline in relations.

Elon Musk in court over Tesla pay Elon Musk will seek to prove that he is deserving of a multibillion-dollar pay package from Tesla, in a court case brought by shareholders who accuse the electric carmaker of having enriched its co-founder and chief executive at their expense.

FT Schools is hosting a free economics webinar today with senior FT journalists and guests covering topics from green energy to government budgets and Brexit. See the full agenda and sign up here to submit your questions to the panel.

What else we’re reading

The global housing market is heading for a brutal downturn At the end of 2021, things looked rosy for the global housing sector. Arguably, there had never been a better time to own a home. Not even a year later, and the picture is completely different, write economics reporter Valentina Romei and the FT’s head of data visualisation, Alan Smith.

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What the midterms mean for investors Midterm elections can have major repercussions for the economy and markets, writes the global chief economist at Kroll Megan Greene. But this is not one of those elections, she says. Whatever the final results, she argues, what is clear is the American government will remain sharply divided. But gridlock and the stability it brings may not be a bad thing for investors, she says.

Deal making gets tougher as era of free money closes Merger and acquisitions advisory is an inherently cyclical business. When the economy is strong, dealmaking and the revenues attached to it go up. In periods of contraction, companies do fewer deals, writes US corporate finance and deals editor James Fontanella-Khan. The current economic environment, however, is puzzling for most US chief executives, he says.

China’s elite seek safety abroad A flock of wealthy Chinese have taken flight from the world’s most populous country just as Xi Jinping embarks on an unprecedented third five-year term in power. Some of those leaving have cited the difficult business environment, while others fear the direction of future government policy.

The creeping normalisation of the hard right Many mature democracies are experiencing the normalisation of the anti-liberal far right — and it’s not easy to combat. It is more fundamental than a struggle over political representation; it is also a struggle over the definition of normality, writes Timothy Garton Ash.

Why the iPad is the pilot’s new best friend The humble tablet computer represents the greatest change to my job since I started flying as a commercial pilot nearly two decades ago, writes Mark Vanhoenacker. Pilots use iPads as a library, an atlas, and a tool for flight planning, briefing and logging, he writes in his latest FT column.

Wine

Ridge Vineyards, the Silicon Valley winery founded by four Stanford scientists in their spare time, celebrates its 70th anniversary this year and the FT’s wine critic Jancis Robinson was invited to taste some of their vintage bottles as part of the celebrations.

Finally, thank you to those who voted in Friday’s poll. Two-thirds of readers thought the US would not avoid a recession next year. Let’s hope they are wrong. I’ll be back in your inbox tomorrow — Gordon