The contagion from FTX’s collapse this month has spread swiftly and deeply. Major institutional lender Genesis suspended operations in an effort to prevent bankruptcy,and trading platform BlockFi has also paused customer withdrawals. Both companies had exposure to FTX and its hedge fund,Alameda Research.

Australian companies have not been exempt either. Crypto investment firm Apollo Capital said it had 1.5 per cent of its flagship fund in FTX’s FTT token,which has plunged over 90 per cent in value,and Telstra Ventures – which is backed by the telecommunications giant – was an investor in FTX’s $US420 million ($620 million) Series B.

But it appears users of a mid-sized Brisbane-based cryptocurrency exchange,Digital Surge,may be some of the unluckiest indirect victims of FTX’s collapse,with the company suspending deposits and withdrawals this week.

“Digital Surge is exposed to FTX and we are currently assessing the situation. Our current priority is to protect and support Digital Surge users and keep them informed,” chief executive Dan Rutter said in a statement.

“We are shocked by the news from FTX and Alameda and its significant impact on the cryptocurrency sector.”

In an explainer on its website,Digital Surge said the business had held “a portion” of its assets – Australian dollars and crypto – on FTX to facilitate trades. The company said it was “considering all available options” to fix its liquidity issues.

‘Everyone is out there saying that “your funds are safe”,but FTX said that hours before filing for bankruptcy. I can’t take anything these exchanges say as fact.’

FTX creditor Kai*

In years gone by,one such option would have been to raise capital,shaking the tin around various crypto-friendly venture capital firms who had,historically,jumped at the opportunity to take a bet on the “next big thing” in tech. But a weakening global economy has meant venture capitalists have become increasingly bearish on the industry,a position that has only worsened post-collapse.

Just five months ago,major Australian exchange Swyftx and share trading platform Superhero announced a surprise merger that valued the two companies at $1.5 billion. Two months later,as markets worsened,Swyftx was forced to lay off 74 workers – 21 per cent of its staff.

Last week,the company surprised users by revealing it was hunting for a short-term capital injection in an effort to bolster its balance sheet and pursue further expansion. As some Swyftx traders worried on Twitter,co-founder Alex Harper assured customers the funds were not needed for the company’s day-to-day operations.

“We’ve publicly discussed the potential to raise growth equity for expansion into new markets and products on many occasions. Nothing has changed. Any suggestion that the intention would be to use a potential raise to fund day-to-day operations is simply untrue,” Harper said.

Swyftx is a signatory to a recent pledge by 13 local crypto exchanges to provide proof of their assets and audited financials in response to the FTX collapse in a further effort to assuage users’ concerns.

However,for Kai*,another local who is set to lose more than $10,000 in FTX’s sudden bankruptcy,these promises are empty.

“Everyone is out there saying that ‘your funds are safe’,but FTX said that hours before filing for bankruptcy,” they said. “I can’t take anything these exchanges say as fact.”

* Names have been changed.

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