FTX: What in the Sam Hell is going on?
That’s right, I’m skipping right over the hill and going right into hell because the FTX and Binance have been tearing up the news cycle this week and we just can’t ignore it.
Earlier this week, the cryptocurrency exchange FTX was facing rumors of insolvency after its competitor and industry giant Binance announced that it was liquidating its holdings of FTX’s native FTT tokens over the weekend.
FTX CEO and crypto billionaire Sam Bankman-Fried was quick to take to Twitter to deny the rumors and state that the exchange was good at the time stating the company was in good shape.
“FTX is fine. Assets are fine,” he wrote on Monday, in a now-deleted tweet. “FTX has enough to cover all client holdings.” He also went on to say that the rumors were being spread by a competitor.
The next 48 hours would become a roller-coaster of different takes in the news as outlets reported that the two exchanges were locking horns, while some users reported that they had trouble withdrawing their funds amid a bank run against FTX after the insolvency rumors.
These included a report from The Block that FTX had stopped processing funds on Ethereum on Tuesday morning, which was disputed by some users on social media. During the time that it appeared withdrawals were suspended there were massive backlogs piling up due to greatly increased withdrawal requests due to the aforementioned run on FTX.
Later that morning, in a surprise announcement Binance CEO Changpeng “CZ” Zhao said that the exchange had come to a tentative agreement to buy FTX as part of a letter of intent for an undisclosed amount to alleviate its illiquidity issues. Zhao said that the acquisition would happen after it completed its due diligence and would affect the non-US holdings of FTX.
At this point, it seemed all was well and everyone could take a breather.
However, Wednesday morning, sources close to Binance said that the company had reviewed FTX’s records and decided that it would probably not acquire the exchange after all.
During this roller-coaster, the cryptocurrency markets reacted with growing volatility with Bitcoin dropping 10% on the news, falling below $1,700, and Ethereum dropping 10% to $1,184.
One big takeaway from this whole affair is that the markets have matured dramatically over the years even as the third largest exchange gets itself into trouble and the market doesn’t collapse like it did when MtGox plowed under in 2014. Rather than crashing all the markets to nearly 10% of their total market value (as was the case of the crisis during MtGox), the fluctuation has been around 10% – 15% of the total value across coins.
During that era, Bitcoin was associated with very few exchanges, and now there are numerous exchanges across numerous markets and there’s an entire decentralized marketplace for tokens. Although DeFi has taken a hit – as DeFiLlama shows the past 24 hours the total locked-in value has dropped by 13% — that’s still a far cry from the massive reeling blow that it would have been when Bitcoin was synonymous with centralized exchanges during the era of “CEO of Bitcoin.”