Arslan Butt
After the news broke that Binance would acquire FTX, the value of the FTX native token FTT jumped by more than 44%. At the time of publication, the token had fallen 23% to $15.60. When it was announced that Binance would purchase the FTX exchange, the price of the struggling FTT token jumped by 40%.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ Binance (@cz_binance) November 8, 2022
Previously, it had dropped by 43% since November 5, as cryptocurrency exchange users and the sector’s reputation appeared to be caught in the crossfire of what appeared to be a conflict between Binance and FTX. On November 5, nearly $600 million in FTT, the native token of FTX, was transferred from a wallet to Binance. Later, Binance founder Changpeng Zhao admitted it belonged to the company.
The FTX token dropped over the weekend as rumors swirled that the exchange may be insolvent. The price of FTT plunged early in the week as news spread that Binance intended to sell more than $500 million worth of FTT. The token hit a low of $14.50 on November 8 but is now trading around $15.90.
After Alameda Research CEO Caroline Ellison announced that the company would buy Binance’s FTT tokens for $22, the price found support at that level. After the statement, the cryptocurrency market seemed to recover, but a reversal has caused FTT to collapse by 23% from its daily high.
BREAKING: Alameda Research & Sam Bankman-Fried, the CEO of FTX was liquidated on-chain for 3.4b today as the exchange native token $FTT fell below $22, triggering the liquidation process.
The wind down liquidation event is expected to trigger a slump for crypto.
– CircleMedia
— Walter Bloomberg (@WalterBloomberg) November 8, 2022
On November 6, CEO Zhao announced on Twitter that he planned to sell a $530 million stake in FTT. Zhao announced on Twitter that he had “decided to liquidate any remaining FTT on our boohttps://twitter.com/lookonchain/status/1584374678251917312?s=20&t=G5ZWePWOIKcFdbrS4HtdMgks.” Binance was an early backer of FTX. However, FTX’s chief executive officer, Sam Bankman-Fried (SBF), has been skeptical of their relationship after several mainstream media reports claimed that Binance and CZ had a history of massive criminal activity.
What Triggered the FTT Sell-off?
Prior to today’s news of Binance acquiring FTX, the market speculated that Binance would liquidate all of its FTT tokens due to FTX insolvency rumors. It is most likely a reference to last week’s publication about FTT’s significant weight on the balance sheet of Alameda Research, the SBF-owned company that is the FTX market maker.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ Binance (@cz_binance) November 6, 2022
The news sparked a slew of follow-up articles calling into question FTX and Alameda’s financial stability. None, however, received a response from SBF’s typically active Twitter account.
High volatility for $FTT after recent rumors of #Alameda's insolvency, fueled by CZ #Binance's willingness to liquidate all tokens on its balance sheet! $FTT rebounds on Caroline saying she will buy everything!
Typical Sunday in Crypto!!!#FTX https://t.co/RVisDgHt9V
— Ca₱₱eX(∞) (@CryptoCappex) November 6, 2022
These doubts about Alameda’s insolvency may have influenced Zhao’s decision. Zhao alluded to the Terra-Luna crash, which enraged the cryptocurrency community, and stated that he was “learning from LUNA.” The current situation is also reminiscent of what caused the cryptocurrency loan company Celsius Network to fail.
Binance Triggered a Bank Run
A bank run occurs when a large number of customers withdraw their assets from a financial institution because they believe the business will cease operations soon. In this case, bank runs indicate that investors are withdrawing funds from the cryptocurrency exchange FTX. Investors sold approximately $112.83 million in cryptocurrency in one hour, according to the cryptocurrency data portal Coinglass.
Surprisingly, long positions accounted for 94.94% of all liquidated positions.
#PeckShieldAlert A PeckShield community contributor has found $284M worth of crypto, including 23,843 $ETH ($36M) & 248M stablecoins has been withdrawn from FTX from a whale 0xB…a81 pic.twitter.com/MMNqKnGvLe
— PeckShieldAlert (@PeckShieldAlert) November 8, 2022
According to PeckShield, a blockchain analytics platform, a whale withdrew $284 million in cryptocurrencies from the FTX market. The current drop is most likely the result of cryptocurrency contagion caused by FTX’s concern in the aftermath of a recent conflict with Binance. It demonstrates that investors are selling their cryptocurrency holdings in FTX, implying that Binance initiated a bank run.
FTX Assured Company’s Financial Stability
On Twitter, FTX stated that “a competitor is attempting to go after us with false rumors,” while also assuring users of the company’s financial stability. In a series of tweets, the exchange assured customers that it has enough funds to protect all client holdings. Furthermore, FTX stated that it has no plans to halt withdrawals.
1) A competitor is trying to go after us with false rumors.
FTX is fine. Assets are fine.
Details:
— SBF (@SBF_FTX) November 7, 2022
FTX also informed customers that it has more than $1 billion in cash on hand and is subject to GAAP audits. The cryptocurrency exchange also emphasized its long history of safeguarding client funds.
Binance to Acquire FTX
With less than 24 hours to go, SBF thanked CZ, CEO of Binance, for his work, writing, “CZ has done, and will continue to do, an outstanding job growing out the global crypto ecosystem.” According to SBF, any “war” reported in the media between Binance and FTX is entirely imaginary. It’s not clear from the statement who, if not Binance, was the “competitor” that was “going after” FTX.
4) A *huge* thank you to CZ, Binance, and all of our supporters. This is a user-centric development that benefits the entire industry. CZ has done, and will continue to do, an incredible job of building out the global crypto ecosystem, and creating a freer economic world.
— SBF (@SBF_FTX) November 8, 2022
With everything going on, FTT is exhibiting sharp volatility as a final agreement between Binance and FTX has not yet been reached, and it is unclear how the recent drop in FTT’s price would affect the transaction.
Updated on November 8, 2022, at 21:00 UTC: Following the publication of this story, the market remained extremely volatile, with Bitcoin losing over 16% to sweep the yearly low from June and set a new low of $17,114. Likewise, FTT also lost over 85% before rebounding above $2.70. The recent admission by FTX that the exchange was having a liquidity shortage has caused the dramatic price action; the insolvency was so bad that Sam Bankman-Fried, the CEO, approved selling FTX to competitor cryptocurrency exchange Binance for an unknown amount.
Related news:
- FTX Token is Crashing But This Trading Crypto is Attracting Millions of Dollars
- CZ Says Binance Is Dumping Sam Bankman-Fried’s FTT Coin But Denies Exchange War With FTX
- Binance’s CZ Says Central Bank Digital Currencies Are Not a Threat to Crypto
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This article was written for Business 2 Community by Arslan Butt.
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