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How did Binance, FTX deal push crypto markets into a frenzy?

Binance was looking to acquire the struggling rival FTX --- which could have worked in favour of Bankman-Fried, however, that hope has likely shattered as well.Premium
Binance was looking to acquire the struggling rival FTX --- which could have worked in favour of Bankman-Fried, however, that hope has likely shattered as well.

  • As per the report, Alameda's assets are worth around $14.6 billion --- of which --- $3.66 billion and locked in FTT, while its third largest assets were worth around $2.16 billion in FTT collateral. This means, more than $5 billion of Alameda's assets are FTT.

Cryptocurrencies have corrected significantly this week with Bitcoin trading below the 18,000 mark. The reason why cryptocurrencies are hurting is due to a panic selloff in the native token of the crypto exchange FTX. Investors seem to have riled up after insolvency rumors sparked for FTX despite the exchange's founder and CEO Sam Bankman-Fried assuring that they are fine. It's not just fear over FTX's financial position and its sister company Alameda's balance sheet. The future looks even bleaker for SBF's FTX after Changpeng Zhao-led Binance pulled away from the acquisition deal. Both BNB and FTT are the most trending cryptos on Thursday.

Binance's native token BNB is currently trading at nearly $310 on CoinMarketCap, at the time of writing. Its market cap is around $49.54 billion. BNB is the top trending cryptocurrency currently.

On the other hand, FTX-backed FTT is struggling to hold around $3.4 levels. FTT's market cap is around $458.17 million.

Why are both BNB and FTT trending?

It all began when a Coindesk report alarmed about Alameda's balance sheet whose foundation was largely made up of coins that it's sister company FTX invented. This raised the question of solvency in Alameda didn't have an independent asset like a fiat currency or another crypto.

As per the report, Alameda's assets are worth around $14.6 billion --- of which --- $3.66 billion and locked in FTT, while its third largest assets were worth around $2.16 billion in FTT collateral. This means, more than $5 billion of Alameda's assets are FTT.

This led sparked rumours of insolvency in FTX. But things further went south when Binance announced that they are liquidating their holdings of FTT tokens as they wanted to be cautious after their experience from the LUNA crash. Investors reacted as well by offloading their holdings in FTT tokens heavily.

But that was not all. Many reports stated that Binance was looking to acquire the struggling rival FTX --- which could have worked in favour of Bankman-Fried, however, that hope has likely shattered as well.

According to the Wall Street Journal, people familiar with the matter said, Binance reversed course on a rescue offer for FTX on Wednesday, leaving the prominent digital firm with an uncertain future as it faces a shortfall of up to $8 billion.

In the aftermath of Binance walking away from the FTX deal, BNB is trading higher by 3% in the last 24 hours, while FTX has nosedived by nearly 30%. In the last seven days, BNB has dropped by over 7%, while the FTX token has plummeted by nearly 87%. In a month, BNB has given positive returns with an upside of nearly 12%, however, FTT has dipped by over 86%.

The Binance-FTX deal has rocked the cryptocurrency markets. The largest cryptocurrency Bitcoin tumbled to its lowest level in two years.

Om Malviya, President, Tezos India said, "With Binance rejecting the FTX acquisition deal, it has caused a hyper-VUCA moment for crypto investors globally and thereby led to a massive downfall of various cryptocurrencies' prices."

Currently, on CoinMarketCap, Bitcoin has erased its $17,500 mark, while Ethereum tries to stay above $1,300. However, some losses have been recovered in the late evening of Thursday with Bitcoin and Ether gaining by nearly 2% and over 12% in the last 24 hours. However, Bitcoin's weekly drop is around 14% and Ether has plunged by 15%.

Counterparts XRP, Cardano, and Dogecoin are trading higher by 4.5-5.5% in the last 24 hours. But they have tumbled on a weekly basis. XRP has shed nearly 15% in the last seven days, while Cardano and DOGE have declined by 6% and 32% as of now.

There is uncertainty in crypto markets as many fear FTX would be another failed story like Terra LUNA that wiped out billions of dollars of investors' wealth in May this year and even hit ground zero.

Malviya added, "After the Terra-Luna crash earlier this year, this fiasco is yet another wake-up call to remind us to shift our focus towards introducing increased transparency and decentralisation."

On Thursday, in a thread, SBF through his Twitter handler said, "I am sorry..". SBF also shed some light on the Binance deal and clarified that he wasn't particularly allowed to say much publicly on it. However, he also added that "of course, it's on me that we ended up there in the first place."

Further, in the thread, SBF highlighted how FTX's liquidity position and leverage took a u-turn drastically.

Midway in the thread, he said, "firstly, one way or another, Alameda Research is winding down trading. He said, "they aren't doing any of the weird things that I see on Twitter--and nothing large at all. And one way or another, soon they won't be trading on FTX anymore."

Secondly, SBF said, "in any scenario in which FTX continues operating, its first priority will be radical transparency--transparency it probably always should have been giving."

Further, SBF said, "all of the stakeholders would have a hard look at FTX governance. I will not be around if I'm not wanted." He added, "All of the stakeholders--investors, regulators, users--would have a large part to play in how it would be run."

Lastly, SBF once again apologised and said they will keep sharing updates on FTX and Alameda.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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