Bankruptcy filings from Celsius and Voyager have raised questions on what happens to investors’ crypto when a platform fails.
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Cryptocurrencies prolonged their slide for a second day Wednesday because the market digested the fallout of FTX and Binance’s offer to bail it out.
Bitcoin fell 7% to $16,929.01, in response to Coin Metrics. Earlier within the day it hit a latest bear market low of $16,521.60, its lowest level since November 2020, in response to Coin Metrics. It reached its all-time high of $68,982.20 one yr ago Thursday. Meanwhile, ether fell 12% to $1,162.46.
The Solana token also continued to fall. It was last down 40%, after plunging 26.4% on Tuesday. Alameda Research, the trading firm owned by Sam Bankman-Fried, who also runs FTX, was an enormous and early backer of the Solana project.
“Market aspects similar to providing SOL token liquidity in addition to support for Solana ecosystem projects on FTX exchange has been a very important driver for Solana’s success,” Bernstein’s Gautam Chhugani said in a note Wednesday. “That is an adversarial event for the Solana ecosystem within the short run. Further, given FTX/Alameda’s balance sheet situation, there could also be near term pressure on its Solana holdings, because the situation resolves.”
Prices were under pressure to start out the day but dropped further mid-morning following a report that Binance is unlikely to undergo with its planned acquisition upon review of FTX’s financials.
“We’re just 36 hours into the due diligence process. Once we’ve accomplished that, we are going to make a choice based on what’s in the most effective interest of Binance’s users across the globe,” the corporate said in an announcement shared with CNBC. “We’ll share more information when we’ve a more substantive update to supply.”
The Bankman-Fried empire unraveled quickly after a report last week showed a big portion of Alameda’s balance sheet was concentrated in FTX Token (FTT), the native token of the FTX trading platform. After some light sparring on Twitter with SBF, Binance CEO Changpeng Zhao announced his company was offloading the FTT on its books, resulting in a run on the favored FTX exchange and a liquidity crisis.
FTX counts among the biggest names in finance — including SoftBank, BlackRock, Tiger Global, Thoma Bravo, Sequoia and Paradigm — amongst its investors.
FTT was down 26% Wednesday, after tumbling greater than 75% the day before.
The bombshell is prone to set the crypto industry back, but to what extent stays to be seen. Analysts foresee further regulatory scrutiny of offshore exchanges, where the vast majority of crypto derivatives trading takes place. It is also unclear how much financial contagion will spill into the remaining of the market.
Moreover, Bankman-Fried had recently been lauded as a “white knight” within the industry as he got here to the rescue of crypto services firms like BlockFi and Voyager that just about didn’t survive the crypto contagion of this spring.
For newcomers to the crypto market, he and FTX became the faces of the industry, securing the naming rights to the Miami Heat basketball team’s stadium last yr, bringing Tom Brady and Giselle Bündchen on as ambassadors of the corporate, and becoming a megadonor to Democratic politics.
“Given the public-facing nature of FTX CEO Sam Bankman-Fried and the scale of FTX, we consider that the week’s events could cause some lack of consumer confidence within the crypto industry, beyond that seen within the aftermath of the 3AC, Celsius, and Voyager events that took place earlier this yr,” especially if contagion takes hold and crypto prices keep dropping, KBW analysts said in a note Tuesday. “It might take time for purchasers to regain trust within the industry, broadly speaking (and we predict regulation could help this).”
