Binance Buying FTX: Good or Bad For The Industry?
After the company encountered a liquidity crisis that shook the market for digital assets and sparked fears of contagion, the cryptocurrency exchange Binance announced that it will buy its smaller rival FTX. This turn of events came as a complete surprise.
On Tuesday, Zhao “CZ” Changpeng wrote on Twitter that FTX had requested their assistance in the afternoon. “There is a significant lack of available liquidity. We signed a non-binding “letter of intent” with the intention of completely acquiring FTX and helping to cover the liquidity crunch so that we could protect our users.”
Cryptocurrency investors were taken aback by the announcement, as a partnership between the two largest cryptocurrency exchanges in terms of volume would signal a seismic shift in the industry’s balance of power.
The news resulted in a temporary uptick in the value of digital assets, but it was not enough to assuage the concerns of nervous investors.
According to CoinDesk, the price of bitcoin dropped by more than 10% on Tuesday, reaching a 52-week low of approximately $17,600. The value of FTX’s native coin, which was denoted by FTT, plummeted by 85%. Other digital assets and equities that were connected to the industry, like Coinbase, also experienced a decline.
Sam Bankman-Fried, the founder and CEO of FTX, is widely regarded as one of the most powerful figures in the cryptocurrency industry. Over the course of the summer, he became something of a one-man bank, forking over approximately one billion dollars to rescue floundering companies as the price of cryptocurrencies continued to fall.
On Tuesday, however, the situation was reversed and Bankman-company Fried’s was forced to deal with a run on FTT.
An executive from the industry stated, “I am actually shocked by this,” and went on to say that the failure of FTX “would be kind of like a Lehman Brothers event for the space.” But if they were rescued without a hitch, then that would probably put an end to things before they started.
Binance and FTX did not immediately provide details about the deal, and they noted that the two sides were working together to figure it out in real time.
According to a tweet that Zhao posted, “There is a lot to cover, and it will take some time.” “This is a very fluid and ever-changing situation, and… Binance retains the right to withdraw from the transaction at any time if they so choose.
A report that was published by the cryptocurrency news website CoinDesk last week suggested that a significant portion of Alameda’s balance sheet was made up of FTT, which is a relatively illiquid token. This report sparked fears regarding FTX and Alameda Research, which is Bankman-trading Fried’s house.
“due to recent revelations,” Zhao, the CEO of Binance, announced on Sunday that his company would sell all of its holdings in FTT, which are estimated to be worth about $580 million. His announcement unnerved investors, which resulted in a precipitous drop in FTT.
In essence, Bankman-Fried was being asked for $580 million in capital, but the company lacked the liquidity to respond to the request.
According to an executive from the relevant industry, this is a “unbelievable situation” that represents “basically a complete shift from anything anyone would’ve expected even a week ago.”
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