The cryptocurrency market slid on Tuesday after the 2 biggest crypto exchanges on the planet, Binance and FTX, got here to a merger agreement to repair the most recent “liquidity crunch.”
Bitcoin was last lower by 11% and trading at $18,064.00, based on Coin Metrics. Earlier within the afternoon it found a recent low for the yr, falling to $17,300.80. Ether was last lower by 16% at $1,334.98.
A few of the biggest losses hit crypto assets tied to Alameda, the trading company also owned by SBF. FTX Token (FTT), the native token of the FTX trading platform fell 76.5% on Tuesday, based on Coin Metrics. The token tied to Ethereum competitor Solana, of which Alameda is a giant backer, lost 28.4%.
In crypto equities, Coinbase slid 11%, and Robinhood, which SBF has a 7.6% stake in, was last lower by 14.5%. Crypto banks like Silvergate and Signature and bitcoin miners like Hut 8 and Riot Blockchain were down double-digit percentages.
The moves got here after Sam Bankman-Fried, CEO of crypto exchange FTX, announced on Twitter that the corporate has agreed to a sale for an undisclosed sum to Binance. Binance CEO Changpeng Zhao confirmed the news minutes afterward Twitter.
The deal will affect the non-U.S. businesses of FTX and Binance. The U.S. arms of every company, Binance US and FTX US, are separate and will probably be unaffected by the news, Bankman-Fried, also generally known as SBF, said in his tweets. The deal has not closed and the businesses have more due diligence to do, the CEOs said.
The crypto market slid earlier within the day as investors’ worries in regards to the solvency of FTX continued to fester, following rumors in regards to the exchange and its sister company Alameda Research that emerged in recent days. It briefly rebounded after the deal got here together.
“There are lots of mirrors to the Celsius and Three Arrows crisis that happened months ago and what you are seeing is investors having deja vu and fear leaking into the markets,” said Conor Ryder, research analyst at Kaiko.
Investor confidence has been shaken after Binance founder Changpeng Zhao tweeted over the weekend that the corporate would sell its holdings of FTT. Binance is the most important crypto exchange on the planet by trading volume and was an early backer of FTX. On Tuesday morning, FTX halted withdrawals from its platform, after spooked investors attempted to drag their funds en masse.
Zhao said in his tweet that Binance has about $2.1 billion price of FTT and BUSD, the fiat-backed stablecoin issued by Binance and Paxos, combined.
“Attributable to recent revelations which have got here to light, we have now decided to liquidate any remaining FTT on our books,” he said.
Those revelations confer with rumors in regards to the solvency of FTX, the second-biggest crypto exchange on the planet by trading volume. A report last week on the state of Alameda’s funds showed a big portion of its balance sheet is concentrated in FTT and its various activities leveraged using FTT as collateral. Alameda has disputed that claim, saying FTT represents only a part of its total balance sheet.
“The Alameda hedge fund is tied to FTX through a ton of FTT tokens and the rumors began that in the event that they are using all of those FTT tokens as collateral… there are two issues,” said Jeff Dorman, chief investment officer at Arca. “If the value of FTT goes way down then Alameda could face margin calls and all types of pressure; two is that if FTX is the lender to Alameda then everyone’s going to be in trouble.”
“What might have been just an isolated issue at Alameda became a bank run,” he added. “Everybody began to drag their assets out of FTX and there is this fear that FTX can be insolvent.”
A ‘black eye for trust’
Ryder said industry observers “generally” had confidence that FTX and its customers “will probably be advantageous” but that the panic was comprehensible. Before late Tuesday morning, SBF had said little on the matter to quell fears.
“The issue is the opaque nature and the dearth of transparency about FTX reserves, Alameda’s reserves, the links between the 2 – nobody really knows easy methods to intertwined the 2 are,” he said. “From that side of things, it mirrors Celsius issues lots in that we have now no transparency of funds, and FTX hasn’t come out and reassured investors so that is what we’re seeing now leak into markets.”
It’s a very good argument for more regulation of centralized entities, Ryder added, saying it’s imperative for all centralized entities – be it hedge funds like Three Arrows Capital or Alameda Research or centralized exchanges like FTX and Binance that are not publicly listed – to keep up a proof of reserves for the sake of investor protection.
Dorman echoed Ryder’s sentiment, saying that while it might be at worst a short-term liquidity issue for the market, it’s “one other black eye for trust.”
“Do they put [the reserves] in a checking account? Do they use them to lend out?” Dorman said. “That is where the dearth of transparency is available in: something that probably is not an issue and should not be an issue becomes a short-term liquidity problem if FTX cannot immediately process all withdrawals.”
