Key Takeaways:
- Cryptocurrency exchange Crypto.com could face insolvency crisis
- Users have revealed the exchange sent $400 million to rival Gate.io ahead of its "proof of reserves" statement
- CRO, the native token of Crypto.com, tanked amid the news
YEREVAN (CoinChapter.com) — Cryptocurrency exchange Crypto.com could be on the verge of insolvency. Rising reports of scams and illegal transactions, coupled with mass withdrawals from the exchange, have caused speculations that the crypto exchange might be headed for an FTX-like bank run. The fact that Company CEO Kris Marszalek has a questionable past doesn’t help either.
Crypto.com sends $400 million to Gate.io: Here’s why
According to Etherscan data, which crypto market observers shared on Twitter, Crypto.com transferred 320,000 Ethereum Tokens (ETH) (approximately US$400 million) to a wallet address associated with Gate.io, a rival exchange.
The transaction took place on October 21. Gate.io subsequently sent back 285,000 ETH within a week. The fishy transaction, which came ahead of its “proof of reserves” statement, has caused panic. Critics have accused the two exchanges of sharing funds between themselves to artificially pump up their reserve numbers.
As CoinChapter earlier reported, Sam Bankman-Fried’s cryptocurrency exchange FTX filed for bankruptcy after reports emerged about its inflated reserves.
However, Kris Marszalek, the CEO of the exchange, clarified that the transfer was a mistake. According to his Twitter post, the funds were supposed to be transferred to another cold wallet but were instead sent to a whitelisted external wallet.
Marszalek also added that “the funds were subsequently returned to our cold storage. New processes and features were implemented to prevent this from reoccurring.
However, the community did not seem to buy this excuse. Several users accused the exchange of illegal, suspicious activity.
Binance CEO Changpeng Zhao was also among those commenting on the situation. Raising a red flag, he claimed the transfer of funds between two crypto exchanges was a “clear sign of problems.”
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CRO Coin Price plummets as investors withdraw their funds from Crypto.com
Within hours after reports of the $400 million transfer to Gate.io emerged, users scrambled to get their funds off the exchange. Ethereum blockchain explorer Etherscan recorded nearly 90,000 transactions, with the graph showing a considerable spike from the normal average.
In the last few hours, more than 89,000 withdrawals of varying sizes have been processed from the Crypto.com transaction account. A quick look at one of the main wallets of Crypto.com on the Ethereum blockchain explorer Etherscan paints a concerning picture of investor sentiment towards the exchange.
Other influencers, like Bitboy Crypto (Ben Armstrong) also posted about the incident, causing further panic. Armstrong informed his followers that he was withdrawing all his funds from Crypto.com, subtly urging them to do the same.
The development, fueled by celebrity reactions, caused CRO coin, the native token of Crypto.com, to crash.
The price of CRO coin tanked over 50%, from $0.1271 to $0.05652 before making slow gains.
If the token fails to regain lost ground, it can trigger an FTX-like selloff, causing more damage to the already battered exchange.
Scam allegations continue
The recent development is not the first time Crypto dot com has found itself in trouble. In January 2022, the Advertising Standards Authority (ASA), the UK’s advertising regulator, banned two of its “misleading” advertisements.
The cryptocurrency exchange has also suffered several hacks, raising questions about its safety.
However, various allegations of scams and illegal activity by Crypto dot com have done the rounds.
“Crooked business – they quickly and easily take your money then refuse to give it back! These are the very kind of cryptocurrency companies that need to be regulated and kept legal by our government. DO NOT use Crypto.com for any reason -you will regret it when you can’t get your money out of their greedy hands!”
one user wrote on the business review platform Site jabber.
Another user accused the exchange of being “a bunch of scam artists” who fake positive reviews to get customers.
Other review platforms also have several comments from disappointed customers accusing the exchange of scams.
“This site is a total scam in my eyes. Getting any kind of assistance is almost impossible on crypto.com so chances are you will lose all your money using their services,”
trader Robert Mclean wrote on TrustPilot.
Another trader accused the exchange of “making it extremely difficult” to get his money back.
Crypto analyst Michael Gogel also expressed similar sentiments about the cryptocurrency exchange.
“Yea. Crypto com is a scam too. Plus illegal in so many ways….the company is shady,”
he claimed.
Users question CEO Kris Marszalek has a mirky past
Other users questioned CEO Kris Marszalek’s questionable past. Before co-founding Crypto.com, Marszalek was the CEO of discount Australian website company Ensogo. The company unexpectedly shut operations in South East Asia, in 2016 causing heavy losses to businesses and employees.
Marszalek resigned from his position shortly before the company shut operations.
The latest developments around Crypto.com has brought the CEO’s credibility under the scanner.
The crypto crash earlier this year, fueled by the tanking of LUNA, dried up trading volumes on the exchange. As a result, Crypto.com laid off over 2,000 employees or around 40% of its workforce.
It has recently also started cutting down its sports sponsorships and promotion deals to save up funds. All these have added to the speculations that the exchange has become insolvent.
As scam allegations continue and traders withdraw their assets from the exchange, Crypto.com could become the next company to go belly up. The results, if that happens. will be disastrous.
