The 30-year-old is being held on criminal charges over an alleged “brazen, multi-year” mass financial fraud, and has been denied bail.

The FTX exchange allowed customers to trade normal money for cryptocurrencies such as Bitcoin. The business went from being worth $32bn to filing for bankruptcy. The move left many users unable to withdraw their funds. According to a court filing, FTX owed its 50 largest creditors almost $3.1bn (£2.5bn).

Securities and Exchange Commission (SEC) Chair Gary Gensler said Bankman-Fried had “built a house of cards on a foundation of deception.”

Bahamas chief magistrate JoyAnn Ferguson-Pratt denied Bankman-Fried bail, citing a “great risk” of flight, and ordered that he be kept on remand until 8 February.

Bankman-Fried faces eight criminal charges in the US, including wire fraud, money laundering and conspiracy to defraud. He also faces civil charges including misleading investors who put more than $1bn into the company. He has indicated that he will fight extradition to the US.

Among the most serious allegations against Bankman-Fried is that he used billions of dollars of customer funds to prop up his investment trading company, Alameda. He has also been accused of using money tied up in FTX for illegal campaign contributions to both the Democrats and Republicans.

It is not yet clear how much people who have funds in the exchange will get back at the end of bankruptcy proceedings – it could be just a small fraction of the amount they deposited.

FTX’s new chief executive, John Ray, told a US congressional committee that FTX’s collapse appeared to be the result of it being controlled by a small group of “grossly inexperienced, non-sophisticated individuals”. He said he had seen “an utter lack of record-keeping – no internal controls whatsoever”.

‘No wonder so many shy away from crypto’

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “Securities fraud charges are piling up against FTX founder and chief executive Sam Bankman-Fried who has been denied bail in the Bahamas. It’s no wonder many speculators are shying away from the crypto world right now, given that the founder of what was one of the biggest and most respected shops selling its wares is accused of fraud on a mass scale, partly to influence politicians.

“The last few years have seen millions of ordinary savers badly stung by pump and dump schemes, with coins and tokens hyped up on social media before evaporating in value. That a sheen of legitimacy painted over the deep cracks in FTX could have dazzled so many institutional investors as well shows how super-tough regulation is desperately needed for operating in the crypto wild west.’’