Cryptocurrency crisis: Alameda used billions in FTX client funds.

© Reuters

By Laura Sanchez – The cryptocurrency sector is trading mixed on Monday, trying to recover from last week’s crash. falls below $17,000 and does not reach $1,300.

Little by little, we continue to learn the causes of the bankruptcy of the second largest stock exchange in the world, FTX.

According to CNBC, Alameda, the quantitative trading firm founded by FTX owner Sam Bankman-Fried, allegedly used billions of dollars in funds from FTX clients, bypassing investors, employees and auditors in the process.

They achieved this by using billions of funds from FTX users without their knowledge, says a source with knowledge of the matter.

In doing some of these leveraged transactions, Alameda used the FTT token as collateral. The price of the FTT token fell 75% in one day, making collateral insufficient to cover the transaction.

FTX therefore underestimated the amount of cash it needed to have available for withdrawals. Regulators require trading platforms to hold enough money to match what customers deposit. This would not have been the case for FTX.

Coindesk published a report on the critical state of FTX accounts and exposing the link between the exchange and Alameda, which caused a panic effect in the investment community, which demanded withdrawals from FTX of around 6 billion dollars, according to Reuters.

Last week, FTX went from being worth $32 billion to bankruptcy. The blurred lines between FTX and Alameda Research resulted in a massive liquidity crunch for both companies. Bankman-Fried resigned as CEO of FTX and said Alameda Research was preparing to wind down its operations.

External auditors likely overlooked this discrepancy because client assets are off-balance sheet, CNBC notes.

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