FTX, the second largest cryptocurrency exchange in the world, suffered a major liquidity crisis last week as hedge funds and other clients lost confidence.

In what amounted to an old-fashioned bank run, FTX was hit by massive withdrawal requests, including $5 billion ($7.5 billion) in withdrawals on the Sunday before its collapse, forcing the exchange to pause withdrawals.

Risky trade

The cash outflow was fueled by growing concerns about FTX’s close ties to…