Bitcoin Briefly Touches New Low for the Year, FTX Token Plunges More than 75% in Broad Crypto Selloff

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FTX token plunges as Binance steps in to buy crypto exchange's non-US unit: CNBC Crypto World

The cryptocurrency market fell on Tuesday after Binance and FTX, the two largest crypto exchanges in the world, agreed to merge to solve what Binance called a “liquidity crisis.”

Bitcoin fell 12.6% to $18,203, according to Coin Metrics. Earlier in the day, it fell to $17,300.80, the lowest level since November 2020. ether plunged 18.2% to $1,311.50 after falling as low as $1,228.89.

These declines spread across the rest of the market, even at one point stealing steam from the stock market rallySmaller crypto assets linked to Alameda, the trading firm also owned by FTX CEO Sam Bankman-Fried, suffered some of the biggest losses. FTX Token (FTT), the original symbol of the FTX trading platform, fell 76.4%. The token linked to the popular Ethereum competitor Solanaof which Alameda is a big supporter, lost 26.4 per cent.

In crypto stocks, Coinbase fell 10.8% and Robinhood, which also has a crypto trading business and in which Bankman-Fried has a 7.6% stake, lost 19%. Other crypto-related stocks, including crypto banks Silvergate and Signature and bitcoin miners Hut 8 and Riot Blockchain, also lost ground.

The measures came after Bankman-Fried announced on Twitter that Binance will buy FTX’s non-US business for an undisclosed amount. Binance CEO Changpeng Zhao confirmed the news minutes later.

The agreement will only affect the non-US companies of FTX and Binance. The US arms of each company, Binance US and FTX US, are unaffected, Bankman-Fried, also known as SBF, said in his tweets. The deal is not closed and the companies have more due diligence to do, the CEOs said.

The crypto market fell as trading got under way as investor concerns about FTX’s solvency swirled following the latest rumors about the exchange and its sister company, Alameda Research. The market rallied briefly after the trade came together.

“There are a lot of mirrors to the Celsius and Three Arrows crisis that happened months ago and what you’re seeing is investors having déjà vu and fear leaking into the markets,” said Conor Ryder, analyst at Kaiko .

A rumor that sparked a ‘bank run’

Investor confidence has been shaken after Binance founder Changpeng Zhao tweeted at the weekend that the company would sell its holdings of FTT. Binance is the largest crypto exchange in the world by trading volume and was an early adopter of FTX. On Tuesday morning, FTX halted withdrawals from its platform after spooked investors tried to withdraw their funds en masse.

Zhao said in his tweet that Binance has about $2.1 billion combined in FTT and BUSD, the fiat-backed stablecoin issued by Binance and Paxos.

“Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books,” Zhao said.

It referred to rumors about the solvency of FTX, the third largest crypto exchange in the world by trading volume. A CoinDesk report Last week, Alameda’s finances showed that a large portion of its balance sheet is concentrated in FTT, and some of its various activities are leveraged with FTT as collateral. Alameda has disputed that claim, saying the FTT represents only a portion of its overall balance sheet.

“The Alameda hedge fund is tied to FTX through a ton of FTT tokens, and the rumors started that if they use all those FTT tokens as collateral… there are two problems,” said Jeff Dorman, chief investment officer at Arca. “If the price of FTT goes way down, then Alameda could face margin calls and all kinds of pressures; two is, if FTX is a lender to Alameda, then everybody’s going to be in trouble.”

“What could have been just an isolated problem at Alameda became a bank run,” he added. “Everybody started pulling their assets out of FTX and there’s this fear that FTX would be insolvent.”

A ‘black eye for trust’

Ryder said industry observers “generally” had confidence that FTX and its customers “would be fine,” but that the panic was understandable. By late Tuesday morning, SBF had said little about the matter that would have calmed rattled investors.

“The problem is the opaque nature and the lack of transparency about FTX reserves, Alameda’s reserves, the connections between the two — nobody really knows how intertwined the two are,” he said. “From that side of things, it very much mirrors the Celsius issue in that we have no transparency of funds and FTX has not come out and reassured investors, so that’s what we’re now seeing seeping out into the markets.”

That’s a good argument for more regulation of centralized entities, Ryder added, saying it’s imperative for all centralized entities — be they hedge funds like Three Arrows Capital or Alameda Research or centralized exchanges like FTX and Binance that aren’t public listed companies – to maintain a proof of reserves for investor protection purposes.

Dorman echoed Ryder’s sentiment, saying that while at best it may be a short-term liquidity problem for the market, it’s “another black eye for confidence.”

“Are they sitting [the reserves] in a bank account? Are they using them to lend?” Dorman said. “That’s where the lack of transparency comes in: something that probably isn’t a problem and shouldn’t be a problem becomes a short-term liquidity problem if FTX can’t process all the withdrawals immediately.”



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