Crypto.com customers fear he may follow FTX, CEO reassures them

The Crypto.com logo is seen on a booth during the Bitcoin Conference 2022 in Miami Beach, Florida on April 6, 2022.

Marco Bello | Reuters

As the cryptocurrency universe grapples with the fallout from FTX’s rapid collapse last week and tries to figure out where the contagion might be headed, questions swirl around Crypto.com, a rival exchange that has taken an equally flamboyant approach to the marketing and celebrity endorsement.

Like FTX, which filed for bankruptcy protection on Friday, Crypto.com is privately held, headquartered outside the United States and offers a range of products for the buying, selling, trading and storage of cryptocurrencies. The company is based in Singapore and CEO Kris Marszalek is based in Hong Kong.

investment news

CNBC Pro
Cathie Wood’s ARK Invest continues to buy more cryptocurrencies despite FTX bankruptcy

Crypto.com is smaller than FTX but still ranks among the top 15 global exchanges, according to CoinGecko. FTX spooked the market not only by its rapid fall, but also because the company was unable to honor billions of dollars in withdrawal requests from users who wanted to recover their funds during the downturn. run to the company. When it became clear that FTX lacked the liquidity needed to give users their money, concerns grew that rivals could be next.

Twitter lit up over the weekend with speculation that Crypto.com was facing problems, and cryptocurrency experts held Twitter Spaces sessions to discuss the matter. Meanwhile, revelations came on Sunday that, in October, Crypto.com missubmitted more than 80% of its holdings in ethers, or about $400 million worth of cryptocurrency, at Gate.io, another cryptocurrency exchange. It was only after the transaction was exposed through public blockchain data that Marszalek acknowledged the incident.

Crypto.com CEO Kris Marszalek speaking at a 2018 Bloomberg event in Hong Kong, China.

Paolo Yeung | Bloomberg | Getty Images

Changpeng Zhao, CEO of rival exchange Binance, fanned the flames of speculation, tweeting on sunday that if an exchange has to move large amounts of cryptocurrencies before or after proving wallet addresses, “that’s a clear sign of trouble.” He added, “Stay away.”

Confidence is clearly shaken. Crypto.com’s native Cronos (CRO) token is down nearly 40% in the past week. The crumbling of FTX’s FTT token was a sign of the crisis the firm has been facing.

“Now I would take your money from Crypto .com,” said Adam Cochran, an investor in blockchain projects and founder of Cinneamhain Ventures, in a tweet during the weekend. “If they’re full reserves, they shouldn’t mind if you sit on the sidelines for a week, but their handling of that hasn’t quite met the bar.”

Marszalek spent the first part of the week trying to reassure users and regulators that the business is fine. On Monday, he said on YouTube that the company had an “extraordinarily strong balance sheet” and was “business as usual” with deposits, withdrawals and trading activities. He followed up with a tweet on Monday evening, indicating that “pickup queue is down 98% in the last 24 hours.”

He spoke to CNBC’s “Squawk Box” Tuesday morning, answering questions about the state of his company, the market, and how it positions itself differently from FTX. In the interview, he said the company has worked with over 10 regulators on 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 has stopped taking people’s word for anything,” Marszalek said. “We have 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 said his platform has since stabilized.

A familiar refrain

Skeptics can point to recent history.

FTX CEO Sam Bankman-Fried said his company’s businesses were “okay” two days before it desperately sought a bailout amid a cash crunch. It’s a familiar tactic. Alex Mashinsky, CEO of now bankrupt cryptocurrency lending platform Celsius, he reassured clients of creditworthiness days before halting withdrawals and finally filing for bankruptcy.

Exterior of the Crypto.com Arena on January 26, 2022 in Los Angeles, California.

Fury Rich | Getty Images

There are other similarities as well.

Just as FTX signed a huge deal last year with the NBA’s Miami Heat for the 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 is home to the Los Angeles Lakers, by the way LA FTX teams had Tom Brady and Steph Curry promoting its products. Crypto.com has chosen Matt Damon as the launcher. Both companies bought the Super Bowl ads and partnered with Formula One.

Marszalek has personal issues from his past that could also be concerning. The Daily Beast reported in November 2021 that Marszalek quit his last job “amid allegations from clients and business partners that he was robbed.” The Australian company was called Ensogo and offered coupons online. He stopped abruptly in 2016.

According to documents filed with the Australian Securities Exchange, Ensogo requested that its shares be suspended from trading in June 2016. The board accepted Marszalek’s resignation at that time, and the company said in a statement that it “has yet to announce the appointment of a new CEO .”

A Crypto.com spokesperson told the Daily Beast that the board of directors has decided to shut down Ensogo and that “there has never been any wrongdoing under Kris’s leadership.”

How many coins?

Then there are the Crypto.com books.

Last week, Crypto.com released unverified information about its assets to blockchain analytics firm Nansen, which used the information to create a graph showing where those assets were held. One startling revelation: Crypto.com had 20% of its assets in shiba inu wallets, a so-called “meme token” that exists solely for speculation, building the shiba-inu dog image of the equally popular joke token, dogecoin.

Marszalek said Monday this was just a reflection of the assets that Crypto.com customers were purchasing. He said in a tweet that it was a popular buy in 2021, along with dogecoin.

When asked on CNBC on Tuesday whether Crypto.com holds any tokens on its balance sheet, Marszalek said it is a “very conservatively managed business” that holds “mostly fiat and stablecoins as our source of capital.”

“Yes, but how much?” asked CNBC’s Becky Quick, reminding Marszalek that FTX had “billions of dollars” in its self-created FTT token before filing for bankruptcy.

Marszalek declined to say.

“We are a private company,” he said, adding he would not provide details “about our balance sheet.”

He was quick to say 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 cryptocurrency winter, which has sent bitcoin and ether down by two-thirds this year. In recent months, Crypto.com has reportedly cut more than a quarter of its workforce. Daily trading volume in CRO fell to around $365 million, according to data from Nomics. Last year, that figure was over $4 billion.

Marszalek’s main focus is now evident: to avoid an FTX-type rush that could see the company lose a boatload of customers. But he also wants to make it abundantly clear that all reserves are available to honor any withdrawal requests and that there is no hedge fund activity taking place with user deposits.

“We run a very simple business,” he said. “We offer 70 million users worldwide access to digital currencies and we take a commission for it.”

Coinbase and Binance have similarly been on media tours trying to allay customer concerns.

FTX Saga Means People Will Increasingly Hold Their Own Cryptocurrencies, Says Blockchain.com CEO

Blockchain.com CEO Peter Smith expects it to fundamentally change the way cryptocurrency enthusiasts hold onto their investments. Smith, whose company operates an exchange and offers a cryptocurrency wallet, told CNBC last week that consumers don’t need to trust third parties to hold their crypto funds and are increasingly doing so themselves.

“You’ll see people go encryption with their own private keys,” Smith said, adding that the company has about 85 million users already doing it this way. “The ultimate reality and the coolest part about cryptocurrencies is that you can store your funds on your private key where you have no exposure to the counterparty.”

From a governance perspective, FTX was particularly concerned. The company had no board of directors, no finance chiefs and no compliance officers, despite raising billions of dollars, some from top companies like Sequoia and Tiger Global, and reaching a valuation of $32 billion.

Marszalek has a more traditional corporate structure. Crypto.com has a four-person advisory board, as well as a CFO, 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’s at least a sign that some scrutiny is in place as Crypto.com and other players try to weather a crypto winter that becomes ever more colder.

“We feel pretty good about where we are as a company and our operations,” Marszalek said, noting that the company generated more than $1 billion in revenue last year and surpassed that number this year. “What worries me is the impact of this crash on the whole industry. It sets us back a couple of years in terms of the reputation of the industry.”

LOOK: Comprehensive CNBC interview with Crypto.com CEO Kris Marszalek

Watch CNBC's full interview with Crypto.com CEO Kris Marszalek

.

Leave a Reply

%d bloggers like this: