The Crypto.com logo is seen on a booth during the Bitcoin 2022 conference in Miami Beach, Florida on April 6, 2022.
Mark Bello | Reuters
As the crypto universe considers the fallout from FTX’s rapid collapse last week and tries to determine where the contagion might be heading next, questions have swirled around Crypto.com, a rival exchange that has embraced an equally flashy approach to marketing and celebrity endorsements.
Like FTX, which filed for bankruptcy protection on Friday, Crypto.com is privately held, based outside of the United States and offers a range of products to buy, sell, trade and store crypto. The company is headquartered in Singapore and its CEO, Kris Marszalek, is based in Hong Kong.
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Crypto.com is smaller than FTX but still ranks among the top 15 global exchanges, according to CoinGecko. FTX spooked the market not only with its rapid fall, but also because the company was unable to honor withdrawal requests, to the tune of billions of dollars, from users who wanted their funds back during the run. to the company. When it became clear that FTX lacked the cash to give users their money, concern grew that rivals could be next.
Twitter lit up over the weekend with speculation that Crypto.com was facing trouble, and crypto pundits held Twitter Spaces sessions to discuss the matter. Meanwhile, revelations landed on Sunday that in October, Crypto.com mistakenly sent more than 80% of its ether holdings, or around $400 million worth of cryptocurrency, to Gate.io, another crypto exchange. It was only after the transaction was exposed via public blockchain data that Marszalek acknowledged the incident..
Crypto.com CEO Kris Marszalek speaking at a 2018 Bloomberg event in Hong Kong, China.
Paul Yeung | Bloomberg | Getty Images
Changpeng Zhao, CEO of rival exchange Binance, fanned the flames of speculation, tweet on sunday that if an exchange has to move large amounts of crypto before or after demonstrating wallet addresses, “that’s a clear sign of trouble.” He added: “Stay away.”
Confidence is clearly shaken. Crypto.com’s native Cronos (CRO) token has fallen nearly 40% in the past week. The collapse of FTX’s FTT token was one of the signs of the crisis the company was facing.
“I would just like to withdraw your money from Crypto .com now,” Adam Cochran, an investor in blockchain projects and founder of Cinneamhain Ventures, said in a Tweeter during the weekend. “If they’re full reserves they shouldn’t care if you sit on the sidelines for a week, but their handling of that hasn’t hit the bar.”
Marszalek spent the start of the week trying to reassure users and regulators that business is good. On Monday, he said on YouTube that the company had an “extremely strong balance sheet” and was “operating as usual” with deposits, withdrawals and trading activity. He followed up with a tweet on Monday evening, stating that “withdrawal queue is down 98% in the last 24 hours.”
He spoke with CNBC’s “Squawk Box” on Tuesday morning, answering questions about the state of his business, the market and how he is positioning himself differently from FTX. He said in the interview that the company has spoken with more than 10 regulators about the “shocking events” surrounding FTX and how to prevent them from happening again.
“I understand that right now in the market you have a situation where everyone is done taking people’s word for it,” Marszalek said. “We focused on demonstrating our strength and stability through our actions.”
Marszalek acknowledged that Crypto.com, like other exchanges, has faced increased withdrawals since the FTX news broke, but he said his platform has since stabilized.
A familiar refrain
Skeptics can point to recent history.
FTX CEO Sam Bankman-Fried said his company’s assets were “good” two days before he desperately sought bailout due to a cash crunch. It’s a familiar tactic. Alex Mashinsky, CEO of now bankrupt crypto lending platform Celsius, reassured clients about solvency days before stopping withdrawals and eventually filing for bankruptcy.
The exterior of Crypto.com Arena on January 26, 2022 in Los Angeles, California.
Rich Fury | Getty Images
There are also other similarities.
Just as FTX signed a massive deal last year with the NBA’s Miami Heat for the team’s arena naming rights, Crypto.com agreed to pay $700 million last November to put its name on it. and its logo on the arena that hosts the Los Angeles Lakers, among others. LA FTX teams had Tom Brady and Steph Curry promoting his products. Crypto.com rocked pitcher Matt Damon. Both companies bought Super Bowl ads and partnered with Formula 1.
Marszalek has personal issues from his past that may also be concerning. The Daily Beast reported in November 2021 that Marszalek quit his last job “amid accusations from clients and business partners that they had been ripped off”. The Australian company was called Ensogo and offered online coupons. It closed abruptly in 2016.
According to documents filed with the Australian Securities Exchange, Ensogo requested a suspension of its shares in June 2016. The board accepted Marszalek’s resignation at that 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 has never been a finding of wrongdoing under Kris’ leadership.”
How many pieces ?
Then there are the Crypto.com books.
Last week, Crypto.com released unaudited information about its assets to analytics firm Blockhain Nansen, which used the information to create a chart showing where those assets were held. A startling revelation: Crypto.com had 20% of its assets in wallets in shiba inu, a so-called “meme token” that exists purely for speculation, building on the joke token’s shiba-inu dog image equally popular, dogecoin.
Marszalek said Monday it was just a a reflection of the assets that Crypto.com customers were buying. He said in a tweet that it was a popular buy in 2021, along with dogecoin.
When asked by CNBC on Tuesday whether Crypto.com held any tokens on its balance sheet, Marszalek said it was a “very conservatively run business” that holds “primarily fiat and stablecoins as a source of capital. “.
“Yeah but how much? asked CNBC’s Becky Quick, reminding Marszalek that FTX had “billions of dollars” in its self-created FTT token before it filed for bankruptcy.
Marshall declined 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 that the company is “very well capitalized” and reiterated comments from his YouTube session on Monday, telling CNBC that the company has “a very strong balance sheet” with “zero debt and zero leverage. in the business, and we have positive cash flow.”
The company has already been hammered during the crypto winter, which has seen bitcoin and ether plummet by two-thirds this year. In recent months, Crypto.com has reportedly cut more than a quarter of its workforce. Daily CRO trading volume fell to around $365 million, according to data from Nomics. Last year, that figure exceeded $4 billion.
Marszalek’s main objective is now clear: to avoid an FTX-style run that could see the company lose a boatload of customers. But he also wants to make it very clear that all reserves are available to honor any withdrawal request and that no hedge fund activity takes place with users’ deposits.
“We run a very simple business,” he said. “We give 70 million users worldwide access to digital currencies and charge a fee for it.”
Coinbase and Binance have also taken part in media tours in an attempt to assuage customer concerns.
Blockchain.com CEO Peter Smith expects the way crypto enthusiasts hold their investments to change dramatically. Smith, whose company operates an exchange and offers a crypto wallet, told CNBC last week that consumers don’t need to trust third parties to hold their crypto funds and are increasingly doing it themselves. .
“You’re going to see people going crypto on their own private keys,” Smith said, adding that the company has about 85 million users already doing it that way. “The ultimate reality and coolest part of crypto is that you can store your funds on your own private key where you have no counterparty exposure.”
From a governance perspective, FTX was particularly troubled. The company had no board, no chief financial officer and no chief compliance officer, despite raising billions of dollars, some from big companies like Sequoia and Tiger Global, and racing for a valuation of $32 billion.
Marszalek has a more traditional corporate structure. Crypto.com has a four-person advisory board along with a chief financial officer, chief legal officer, and senior vice president of risk and operations. That 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 as Crypto.com and d other players are trying to weather a crypto winter. which is getting colder and colder.
“We’re pretty happy with where we are as a business and with our operations,” Marszalek said, noting that the company generated more than $1 billion in revenue last year and surpassed that figure this year. . “What worries me is the impact of this collapse on the whole industry. It sets us back a few years in terms of industry reputation.”
LOOK: Full CNBC interview with Crypto.com CEO Kris Marszalek
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