Top economist Mohamed El-Erian says the FTX crypto fiasco will keep regulators up at night as they scramble to catch up

• Mohamed El-Erian said the FTX crypto chaos will keep regulators up at night.
• That's because they will be playing "massive" catch-up, after FTX revealed a liquidity crunch.

Top economist Mohamed El-Erian said the latest mess in crypto markets spurred by FTX will keep regulators up at night as they scramble to play catch-up.

In an interview with CNBC on Wednesday, the chief economic adviser at Allianz said what's happening with cryptocurrencies is "stunning."

"The good news is, unlike banks they are not part of the payments and settlement system so we don't have to worry about big systemic effects," El-Erian said.

He warned that crypto regulators will be playing "massive" catch-up in response to the market downfall.

"The amount of irresponsible leveraging that has been taken, the cross ownership of assets. This sort of thing should not happen," El-Erian said. "What they are seeing, I suspect, will keep them up at night."

The Securities and Exchange Commission and the Commodity Futures Trading Commission opened investigations into FTX months ago as to whether the the crypto exchange mishandled customer funds, according to the Wall Street Journal.

Cryptocurrencies took a tumble on Tuesday after Binance's eye-popping announcement that it intends to buy FTX. In a bizarre turn of events, Binance on Wednesday U-turned on the deal, saying issues at Sam Bankman-Fried's crypto exchange are beyond their ability to control or help.

The initial news of the rescue deal however, which came in response to a liquidity crunch at FTX, sent chills through the crypto market because it renewed fears about liquidity risks in the industry.

The market was still under pressure on Thursday after Bankman-Fried said FTX could go bankrupt if it doesn't receive a cash injection of $8 billion.

In the last 24 hours, Bitcoin dipped 0.7% to $17,474, extending its slide so far this week. While other tokens like ether mildly recovered, dogecoin and solana experienced still experienced falls, sliding 6.81% and 19%, respectively. Meanwhile, the global crypto market cap slipped less than 0.1% to $871.23 billion, per CoinMarketCap.