The emblem of Crypto.com is seen at a stand throughout the Bitcoin Conference 2022 in Miami Beach, Florida, April 6, 2022.
Marco Bello | Reuters
As the crypto universe reckons with the fallout of FTX’s speedy collapse final week and tries to determine the place the contagion could head subsequent, questions have been swirling round Crypto.com, a rival change that is taken a equally flashy strategy to advertising and movie star endorsements.
Like FTX, which filed for chapter safety on Friday, Crypto.com is privately held, based mostly outdoors the U.S. and gives a spread of merchandise for purchasing, promoting, buying and selling and storing crypto. The firm is headquartered in Singapore, and CEO Kris Marszalek relies in Hong Kong.
associated investing information
Crypto.com is smaller than FTX however nonetheless ranks among the many prime 15 world exchanges, in response to CoinGecko. FTX spooked the market not simply by its speedy downfall but in addition as a result of the corporate was unable to honor withdrawal requests, to the tune of billions of {dollars}, from customers who wished to retrieve their funds throughout the run on the agency. When it turned clear that FTX did not have the liquidity obligatory to present customers their cash, concern mounted that rivals could also be subsequent.
Twitter lit up over the weekend with hypothesis that Crypto.com was going through issues, and crypto consultants held Twitter Spaces classes to debate the matter. Meanwhile, revelations landed on Sunday that, in October, Crypto.com mistakenly despatched more than 80% of its ether holdings, or about $400 million price of the cryptocurrency, to Gate.io, one other crypto change. It was solely after the transaction was uncovered by public blockchain knowledge that Marszalek acknowledged the mishap.
Kris Marszalek, CEO of Crypto.com, talking at a 2018 Bloomberg occasion in Hong Kong, China.
Paul Yeung | Bloomberg | Getty Images
Changpeng Zhao, CEO of rival change Binance, fanned the flames of hypothesis, tweeting on Sunday that if an change has to maneuver massive quantities of crypto earlier than or after it demonstrates the pockets addresses, “it is a clear sign of problems.” He added, “Stay away.”
Confidence is clearly shaken. Crypto.com’s native Cronos (CRO) token has dropped almost 40% within the final week. The crumbling of FTX’s FTT token was one signal of the disaster that firm confronted.
“I would just get your money out of Crypto .com now,” mentioned Adam Cochran, an investor in blockchain tasks and founding father of Cinneamhain Ventures, in a tweet over the weekend. “If they are full reserves they shouldn’t care if you sit on the sidelines for a week, but their handling of this hasn’t met the bar.”
Marszalek has spent the early a part of the week attempting to reassure customers and regulators that the enterprise is okay. On Monday, he mentioned on YouTube that the corporate had a “tremendously strong balance sheet” and that it is “business as usual” with deposits, withdrawals and buying and selling exercise. He adopted up with a tweet Monday night, indicating that “the withdrawal queue is down 98% within the last 24 hours.”
He spoke to CNBC’s “Squawk Box” on Tuesday morning, answering questions in regards to the state of his firm, the market and the way he is in another way positioned than FTX. He mentioned within the interview that the corporate has engaged with over 10 regulators in regards to the “shocking events” surrounding FTX and the right way to hold them from occurring once more.
“I understand that right now in the market, you’ve got a situation where everyone is done taking people’s word for anything,” Marszalek mentioned. “We focused on demonstrating our strength and stability through our actions.”
Marszalek acknowledged that Crypto.com, like different exchanges, has confronted elevated withdrawals because the FTX information broke, however he mentioned his platform has since stabilized.
A well-recognized chorus
The skeptics can level to latest historical past.
FTX CEO Sam Bankman-Fried mentioned his firm’s belongings had been “fine” two days earlier than he was determined for a rescue due to a liquidity crunch. It’s a well-recognized tactic. Alex Mashinsky, CEO of the now bankrupt crypto lending platform, Celsius, reassured customers of solvency days before halting wtihdrawals and ultimately filing for bankruptcy.
The exterior of Crypto.com Arena on January 26, 2022 in Los Angeles, California.
Rich Fury | Getty Images
There are other similarities, too.
Just as FTX signed a massive deal last year with the NBA’s Miami Heat for naming rights to the team’s arena, Crypto.com agreed to pay $700 million last November to put its name and logo on the arena that hosts the Los Angeles Lakers, among other teams in L.A. FTX had Tom Brady and Steph Curry promoting its products. Crypto.com reeled in Matt Damon as a pitchman. Both companies bought Super Bowl ads and partnered with Formula One.
Marszalek has personal issues from his past that may also be concerning. The Daily Beast reported in November 2021 that Marszalek departed his last job “amid accusations from customers and business partners that they had been ripped off.” The Australian company was called Ensogo, and it offered online coupons. It abruptly shut down in 2016.
According to documents filed with the Australian Securities Exchange, Ensogo requested its stock be suspended from trading in June 2016. The board accepted Marszalek’s resignation at that time and the company said in a filing that it “is yet to announce the appointment of a new CEO.”
A spokesperson for Crypto.com told the Daily Beast that the board decided to shutter Ensogo, and “there was never a finding of wrongdoing under Kris’s leadership.”
How many coins?
Then there are Crypto.com’s books.
Last week, Crypto.com released unaudited information about its assets to blockhain analytics firm Nansen, who used the information to create a chart showing where those assets were held. One 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 off the shiba-inu dog image of the similarly popular joke token, dogecoin.
Marszalek said on Monday that this was just a reflection of the assets Crypto.com customers were buying. He mentioned in a tweet that it was a preferred buy in 2021, together with dogecoin.
When requested by CNBC on Tuesday if Crypto.com holds tokens on its steadiness sheet, Marszalek mentioned it is a “very conservatively run business” that holds “mostly fiat and stablecoins as our source of capital.”
“Yeah but how much?” requested CNBC’s Becky Quick, reminding Marszalek that FTX had “billions of dollars” in its self-created FTT token earlier than it declared chapter.
Marszalek declined to say.
“We’re a privately held company,” he mentioned, including that he isn’t going to offer specifics “about our balance sheet.”
He was fast to say that the corporate is “very well capitalized,” and reiterated feedback from his YouTube session on Monday, telling CNBC that the corporate has “a very strong balance sheet” with “zero debt and zero leverage in the business, and we are cash flow positive.”
The firm has already been hammered throughout the crypto winter, which has pushed bitcoin and ether down by two-thirds this yr. In latest months, Crypto.com reportedly slashed over one-quarter of its workforce. Daily buying and selling quantity in CRO is right down to about $365 million, in response to knowledge from Nomics. Last yr, that determine was above $4 billion.
Marszalek’s important objective now could be evident: keep away from an FTX-type run that would see the corporate lose a boatload of consumers. But he additionally needs to make it abundantly clear that each one the reserves can be found to honor any withdrawal requests, and that there is no hedge fund exercise going down with consumer deposits.
“We run a very simple business,” he mentioned. “We give 70 million users globally access to digital currencies and take a fee for that.”
Coinbase and Binance have equally been on media excursions attempting to assuage buyer issues.
Blockchain.com CEO Peter Smith expects the entire method that crypto fanatics maintain their investments to alter dramatically. Smith, whose firm operates an change and gives a crypto pockets, instructed CNBC final week that buyers needn’t belief third events to carry their crypto funds, and are more and more doing it themselves.
“You’re going to see people shift toward crypto on their own private keys,” Smith mentioned, including that the corporate has about 85 million customers who already do it that method. “The ultimate reality and coolest part of crypto is you can store your funds on your own private key where you have no counterparty exposure.”
From a governance standpoint, FTX was uniquely troubled. The firm had no board, no finance chief and no head of compliance, regardless of elevating billions of {dollars}, some from prime corporations like Sequoia and Tiger Global, and racing to a $32 billion valuation.
Marszalek has a extra conventional company construction. Crypto.com has a four-person advisory board in addition to a CFO, a head of authorized and a senior vp of danger and operations. That doesn’t suggest there cannot be fraud (see: Theranos) or dangerous habits (learn: WeWork), however it’s no less than an indication that some controls are in place as Crypto.com and different gamers attempt to climate a crypto winter that retains getting colder.
“We feel quite good about where we are as a company and our operations,” mentioned Marszalek, stating that the corporate generated over $1 billion in income final yr and has topped that quantity this yr. “What worries me is the impact of this collapse on the whole industry. It sets us back a good couple of years in terms of the industry’s reputation.”
WATCH: CNBC’s full interview with Crypto.com CEO Kris Marszalek
Source: www.cnbc.com”