The ghosts of the summer have made their return to the crypto planet.
If the prices of digital currencies are not moving too much for the moment, the question is how long this relative calm will last, because a real earthquake has just shaken the young industry.
It is still too early to assess the damage caused by this earthquake, which comes in the form of the takeover of FTX.com, one of the largest trading platforms for cryptocurrencies and digital assets, by its great rival Binance.
Binance is the world's largest cryptocurrency exchange by volume. The deal between the two platforms was announced on the social network Twitter.
'FTX Asked for Our Help'
"Hey all: I have a few announcements to make," FTX CEO and Founder Sam Bankman-Fried posted on November 8. "Things have come full circle, and http://FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for http://FTX.com (pending DD etc.)."
"Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. -- we apologize for that."
He added that customers were protected and the deal did not include the US subsidiary FTX.US.
The two parties did not give financial details of the agreement. We do not know, for example, what will become of the assets acquired by FTX and Bankman-Fried recently.
"This afternoon, FTX asked for our help," confirmed Changpeng Zhao, co-Founder and CEO of Binance. "There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire http://FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days," he added.
DD refers to due diligence.
FTX.com's cry for help came just 48 hours after Zhao announced that Binance was going to sell FTT, the cryptocurrency linked to the FTX.com ecosystem. In other words, its value is an indicator of the valuation of the platform.
This decision, announced on November 6, followed a report by Coindesk revealing that FTX was in poor financial health. The report questioned the state of the platform's liquidity.
"As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books," Zhao posted on November 6.
Binance holds $530 million worth of FTT coins it received when the firm sold its stake in FTX in 2021.
In a November 2 article, Coindesk claimed that most of the balance sheet from Alameda Research, Bankman-Fried's trading platform, is comprised of the FTT token. Clearly, if the FTT cryptocurrency collapsed, Alameda would be left with nothing. This revelation surprised investors who thought the firm had other assets.
Alameda and FTX have close ties. The leaked balance sheet shows that Alameda listed $3.66 billion in unlocked FTT and $2.16 billion worth of FTT collateral. It also shows a total of $14.6 billion in assets and some $8 billion in liabilities, which includes $7.4 billion worth of loans.
'FTX Is Fine'
FTX spent November 7 reassuring about its financial health, but panic set in with investors who began withdrawing their money. FTX thus saw a net outflow of $653 million in 24 hours, according to the firm Nansen.
Just 24 hours ago, Bankman-Fried said this: "FTX is fine. Assets are fine."
The failure of FTX.com recalls the collapse in the summer of several firms and cryptocurrencies. It all started with the fall of sister cryptocurrencies Luna and UST or TerraUSD on May 9.
The market value of the two tokens had collapsed causing an unprecedented liquidity crisis and the ruin of many investors. At least $55 billion was lost.
This crash affected prominent crypto lenders like Voyager Digital and Celsius Network, which filed for Chapter 11 bankruptcy. Hedge fund Three Arrows Capital (3AC), which was the conduit through which these lenders were exposed to both tokens, was forced into liquidation.
This credit crunch has weakened many other firms. And ironically, it was Bankman-Fried who stepped in to bail out platforms and avert what could have been a huge disaster for the crypto industry.
The question now is which firm is safe from a liquidity crisis in view of the fate of FTX, which was still valued at more than $32 billion in February.
