The crypto market suffered yet another dip in the last 24 hours, with Bitcoin dropping to below US$16,000 – a low that has not been seen since November 2020. This is as the crypto market saw another swift and shocking collapse – this time of cryptocurrency exchange FTX in just a matter of days.

Bitcoin briefly touched a low of US$15,555 yesterday before recovering back to the current US$16,400 range, and as you can expect, it is not the only crypto to stumble. Second largest token Ether also took a fall to a low of US$1,071. Other alternative coins, too, were affected, including Ripple, Cardano, and Litecoin. The worst hit is perhaps Solana – which saw its price nosedive by 46% to less than US$14 in the past 24 hours – as it is closely linked to the now-embattled FTX through several investment partnerships and support.

The fall of FTX came right at the heels of numerous meltdowns that had taken place since mid-2022, most notably being Terraform Labs (key player in the collapse of the Terra blockchain), as well as crypto hedge fund Three Arrows Capital and crypto lender Celsius Network Ltd. It has left the market reeling because FTX itself had seemed sufficiently propped up with financial backing from high profile institutional names – such as BlackRock, SoftBank, Sequoia, and Temasek Holdings – and was also offering bailouts of its own to other ailing crypto firms (Voyager being one example). It was also a huge donor to Democratic politics, spending an estimated US$40 million on the upcoming midterm US election.

But more importantly, the effect of FTX’s collapse will be significant because of its size; it is one of the largest crypto exchanges in the world in terms of market capitalisation, with a valuation of US$32 billion (as of February 2022). In comparison, previous casualties Celsius and Three Arrows both had a valuation of US$25 billion and US$10 billion, respectively, while Terraform Labs was valued at US$60 billion. In fact, FTX was – at one point – second only to Binance, the world’s largest crypto exchange.

To chart the timeline of FTX’s fall, it was triggered by a leaked balance sheet from Alameda Research, a crypto trading firm that also belonged to the CEO of FTX, Sam Bankman-Fried. This document was picked up by crypto news site, CoinDesk, who then highlighted the close financial ties between FTX and Alameda Research, as approximately 25% of Alameda Research’s asset are held in FTT (the native token of FTX). This ultimately led to growing concerns as investors noted how reliant Alameda’s finances were on FTT, and how FTT’s value was, in turn, heavily dependent on purchases from FTX itself.

Alameda Research later attempted to dispel such concerns by clarifying that the leaked balance sheet only showed a portion of the firm’s assets. However, the situation only continued to escalate when Binance – who owned FTT from a previous stake sale – decided to liquidate its holdings of FTT “due to recent revelations that have come to light”. FTX then saw massive withdrawals of about US$6 billion in just 72 hours, which prompted the exchange to pause withdrawals.

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 🔶 BNB (@cz_binance) November 8, 2022

This then brings us to the most recent development of the saga, which saw Binance signing a non-binding letter of intent to acquire FTX.com (not inclusive FTX’s entity) on 8 November (Tuesday) to “help cover the liquidity crunch”. However, the proposed deal subsequently fell through, with Binance citing “corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations” as its reasons.

“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance further noted on its Twitter account. As a result, FTX is now left to explore all other options that remain to it, facing a shortfall of up to US$8 billion.

As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.

— Binance (@binance) November 9, 2022

In light of this latest incident, analysts unanimously agree that the crypto industry will be set back. In the last 24 hours, the total market capitalisation for all crypto assets has fallen by more than 10%, from US$980 billion to US$805.97 billion.

“Given the public-facing nature of FTX CEO Sam Bankman-Fried and the size of FTX, we believe that the week’s events could cause some loss of consumer confidence in the crypto industry, beyond that seen in the aftermath of the 3AC, Celsius, and Voyager events that took place earlier this year. It may take time for customers to regain trust in the industry, broadly speaking (and we think regulation could help this),” analysts at research service provider Keefe, Bruyette & Woods (KBW) further said in a note.

(Source: CNBC)

• TAGS:
• Alameda Research
• Binance
• Cardano
• Celsius Network Ltd
• Crypto Crash
• Cryptocurrency
• Ether
• Ethereum
• FTX
• Longform
• Ripple
• Sam Bankman-Fried
• Solana
• Terraform Labs
• Three Arrows Capital