As the cryptocurrency world weighs the fallout from last week’s rapid collapse of FTX and tries to figure out where the contagion might go next, questions are swirling around Crypto.com, a rival exchange that has taken an equally charismatic approach to marketing and celebrity endorsements. .
Like FTX, which filed for bankruptcy protection on Friday, Crypto.com is a private company based out of the United States that offers a range of products for buying, selling, trading and storing cryptocurrencies. The company is headquartered in Singapore and CEO Chris Marsalek is based in Hong Kong.
Crypto.com is smaller than FTX but is still among the top 15 global exchanges. FTX scared the market not only because of its rapid decline, but also because the company was unable to accommodate withdrawal requests, worth billions of dollars, from users who wanted their money back while the company was running. As it became apparent that FTX lacked the liquidity to give users cash, concerns grew that competitors might be next.
Twitter lit up over the weekend with speculations that Crypto.com was running into trouble, and crypto experts held sessions on Twitter Spaces to discuss the matter. Meanwhile, on Sunday it was revealed that in October, Crypto.com mistakenly sent more than 80% of its ether holdings, or about $400 million worth of cryptocurrency, to Gate.io, another cryptocurrency exchange. encrypted. Only after the transaction was revealed by public blockchain data did Marsalek admit to the incident.
Changpeng Zhao, CEO of rival exchange Binance, has been fanning the flames of speculation, tweeting on Sunday that if the exchange has to move large amounts of cryptocurrency before or after showing wallet addresses, “this is a sure sign of trouble.” He added, “Go away.”
Obviously, confidence has been shaken. Crypto.com’s native token Cronos (CRO) has fallen nearly 40% in the past week. The collapse of FTX’s FTT token was a sign of the crisis the company was facing.
“I am going to take your money out of Crypto.com right now,” Adam Cochran, blockchain investor and founder of Cinneamhain Ventures, said in a tweet over the weekend. “If the bookings were full they shouldn’t mind if you were out for a week but the way they handled it was just not up to standard.”
Marsalek spent the beginning of the week trying to reassure users and regulators that business was OK. On Monday, he said on YouTube that the company has a “very strong balance sheet” and that “everything is normal” with deposits, withdrawals and trading activity. He followed that up with a tweet Monday night, noting that “the waitlist has decreased by 98% in the last 24 hours.”
The checkout queue has decreased by 98% in the last 24 hours.
It remains business as usual at https://t.co/pFc4Pz9nFR.
Kudos to our team that built a resilient blockchain infrastructure – it works normally under load.
– Chris | Crypto.com (@kris) November 14, 2022
He spoke with CNBC’s “Squawk Box” Tuesday morning, answering questions about the state of his company, the market, and how it’s positioned differently from FTX. In the interview, he said the company has engaged with more than 10 regulators about the “shocking events” surrounding FTX and how to prevent it from happening again.
“I understand that right now in the market, you have a situation where everyone is not taking people’s word for anything,” Marsalik said. “We focus on showing our strength and stability through our actions.”
Marsalek acknowledged that Crypto.com, like other exchanges, has faced a spike in withdrawals since the FTX news broke, but said its platform has since leveled off.
Skeptics can point to recent history.
FTX CEO Sam Bankman-Fried said his company’s assets are “good” two days before he was desperate for a bailout due to a liquidity crisis. It’s a familiar tactic. Alex Mashinsky, CEO of now-bankrupt cryptocurrency lending platform Celsius, assured clients of days of solvency before halting withdrawals and eventually filing for bankruptcy.
There are other similarities as well.
Just as FTX signed a massive deal last year with the NBA’s Miami Heat to name the team’s arena rights, Crypto.com agreed to pay $700 million last November to put its name and logo on the arenas it hosts. The teams at LA FTX promoted Tom Brady and Steph Curry for their products. Crypto.com erupted at Matt Damon like a poster child. Both companies bought Super Bowl advertising and partnered with Formula 1.
Marsalek has personal issues from his past that can also be annoying. The Daily Beast reported in November 2021 that Marsalek resigned from his latest job “amid accusations from clients and business partners that they had been hacked.” The Australian company was called Ensogo and it offered online coupons. It suddenly closed in 2016.
According to documents filed with the Australian Securities Exchange, Ensogo requested a suspension of its shares in June 2016. The board of directors accepted Marszalek’s resignation at the time and the company said in a filing that it “has not yet announced the appointment of a new CEO.”
A Crypto.com spokesperson told The Daily Beast that the board decided to shut down Ensogo and “there was never a discovery of wrongdoing under Chris’ leadership.”
How many coins?
Then there are Crypto.com Books.
Last week, Crypto.com disclosed unaudited information about its assets to blockchain analytics firm Nansen, which used the information to create a graph showing where those assets were held. Surprising revelation: Crypto.com had 20% of its assets in shiba inu wallets, a so-called “meme token” that exists only for speculation, based on an image of a shiba-inu dog from the equally popular joke symbol, Dogecoin.
Marsalek said on Monday that this was simply a reflection of the assets Crypto.com customers were buying. He said in a tweet that it was a popular buy in 2021, along with Dogecoin.
When asked on Tuesday whether Crypto.com holds tokens on its balance sheet, Marsalek said it is a “very conservatively managed company” that holds “primarily fiat and stablecoins as a source of capital.”
“Yes, but how much?” asked CNBC’s Becky Quick, reminding Marszalek that FTX had “billions of dollars” in self-generated FTT tokens before declaring bankruptcy.
Marshall refused to say.
“We are a private company,” he said, adding that he would not provide details “about our balance sheet.”
He was quick to say the company is “very well capitalized” and echoed comments from his YouTube session on Monday, saying the company has a “very strong balance sheet” with “zero debt, zero leverage in the business, and we have positive cash flow.”
The company has already been hit hard during the crypto winter, which has caused bitcoin and ether to lose two-thirds this year. In recent months, Crypto.com has reportedly cut more than a quarter of its workforce. Cronos Coin (COIN: CROUSD) daily trading volume has dropped to around $365 million. Last year, that figure exceeded $4 billion.
Marszalk’s main goal is now clear: to avoid an FTX-type run that could cost the company many customers. But he also wants to make it very clear that all reserves are available to meet any withdrawal requests and that there is no hedge fund activity with user deposits.
“We have a very simple business,” he said. “We give 70 million global users access to cryptocurrency and charge for it.”
Coinbase and Binance have also made the media rounds in an effort to allay customer concerns.
Blockchain.com CEO Peter Smith expects to dramatically change the entire way cryptocurrency enthusiasts make their investments. Smith, whose company operates an exchange and offers a crypto wallet, told CNBC last week that consumers don’t need to trust a third party to hold their crypto money and are increasingly doing it themselves.
“You will see people move to encrypt their private keys,” Smith said, adding that the company has about 85 million users already doing it this way. “The ultimate truth and the coolest part of crypto is that you can store your funds in your private key as there is no counterparty exposure.”
From a governance point of view, FTX has been in a unique predicament. The company did not have a board of directors, chief financial officer and chief compliance officer, despite raising billions of dollars, some of it from big companies like Sequoia and Tiger Global, and reaching $32 billion.
Marsalek has a more traditional corporate structure. Crypto.com has a four-person advisory board, in addition to the Chief Financial Officer, Chief Legal Officer and Senior Vice President of Risk and Operations. This doesn’t mean there can’t be fraud (see: Theranos) or bad behavior (read: WeWork), but it is at least a sign that some controls are in place, like Crypto.com and others. players Try to weather the crypto winter that keeps getting colder.
“We feel really good about where we are as a company and our operations,” Marsalik said, noting that the company generated more than $1 billion in revenue last year and has surpassed that figure this year. “What worries me is the impact of this crash on the entire industry. This takes us back a few years in terms of the reputation of the industry.”
With information from CNBC