‘Craziest day ever’: Bitcoin collapses as FTX agrees to sell to rival Binance amid liquidity fears
The price of bitcoin has crashed as the market reels from the “craziest day” since 2013, with one crypto figure’s $US16 billion fortune all but wiped out in one day.
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The price of bitcoin has crashed to a yearly low of under $US18,000 ($27,685) as the market reels from yet another liquidity scare at a major cryptocurrency exchange.
Bitcoin plunged by more than 14 per cent in the space of three hours early on Wednesday morning, bottoming out at $US17,603 ($27,072) before paring some losses, according to Coinmarketcap.
The price of ethereum, the second-largest cryptocurrency, has also plummeted by more than 17 per cent in the past 24 hours.
The total value of the broader cryptocurrency market is now just over $US900 billion ($1.4 billion), down from a peak of nearly $US3 trillion ($4.6 trillion) in November 2021 after a series of massive corrections this year.
Nine years in crypto. Today is the craziest day since I bought my first Bitcoin in 2013.
— Ryan Selkis 🥷 (@twobitidiot) November 8, 2022
Crazier than Mt Gox
Much crazier than 3AC/ LUNA
Just shocking.
“Nine years in crypto. Today is the craziest day since I bought my first bitcoin in 2013,” Ryan Selkis, founder of crypto market intelligence provider Messari, wrote on Twitter.
Mr Selkis said it was “crazier” than Mt Gox — the Tokyo-based exchange which had hundreds of thousands of bitcoin stolen by hackers in 2014 — and “much crazier” than this year’s collapse of crypto hedge fund Three Arrows Capital, or the earlier implosion of the Terra/Luna coins.
“Just shocking,” Mr Selkis said.
The latest sell-off was sparked by the stunning news that Binance, the world’s largest crypto exchange, was buying arch rival FTX.
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It came after days of speculation — largely played out in a public drama via back-and-forth tweets between Binance chief executive Changpeng “CZ” Zhao and FTX’s Sam Bankman-Fried — that FTX faced a liquidity crisis.
Those fears were officially confirmed on Tuesday as the two companies announced the merger.
“This afternoon, FTX asked for our help,” Mr Zhao wrote on Twitter.
“There is a significant liquidity crunch. To protect users, we signed a non-binding [letter of intent], intending to fully acquire [FTX] and help cover the liquidity crunch. We will be conducting a full [due diligence] in the coming days.”
There is a lot to cover and will take some time. This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
He added, “There is a lot to cover and will take some time. This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop.”
Industry website CoinDesk first raised concerns last week that the balance sheet of FTX’s corporate sibling Alameda Research was too heavily reliant on illiquid tokens including FTX’s own FTT.
That sparked widespread speculation that the finances of both companies, founded and largely owned by Mr Bankman-Fried, were in trouble.
In response, Mr Zhao publicly announced that he would sell his holdings of the FTT token, worth $US584 million ($898 million).
“Liquidating our FTT is just post-exit risk management, learning from LUNA,” he tweeted.
“We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs. Onwards.”
Alameda’s CEO, Caroline Ellison, responded to Mr Zhao on Sunday saying she would buy all of Binance’s FTT holdings for $US22 each “to minimise the market impact”.
Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won't pretend to make love after divorce. We are not against anyone. But we won't support people who lobby against other industry players behind their backs. Onwards.
— CZ 🔶 Binance (@cz_binance) November 6, 2022
The value of the FTT token has since collapsed by around 75 per cent.
Fears continued to mount on Tuesday as FTX customers reported difficulties withdrawing money, despite the company insisting that everything was “running smoothly” and that it was “churning through” withdrawals.
According to data from Coinglass, investors have withdrawn bitcoin en masse from FTX, cutting the balance from 20,000 to just one in the space of 24 hours.
Confirming the proposed Binance takeover, Mr Bankman-Fried said “things have come full circle”.
“FTX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for [FTX],” he said.
“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 apologise for that. But the important thing is that customers are protected.”
Mr Bankman-Fried insisted the merger was a “user-centric development that benefits the entire industry”.
“CZ has done, and will continue to do, an incredible job of building out the global crypto ecosystem, and creating a freer economic world,” he said.
2) 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.
— SBF (@SBF_FTX) November 8, 2022
“I know that there have been rumours in [the] media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralised global economy while working to improve industry relations with regulators. We are in the best of hands.”
Mr Zhao founded Binance in 2017, building the platform into an industry heavyweight in a few short years.
According to The Wall Street Journal, spot trading volume of cryptocurrencies on Binance in September were $US541 billion ($831 billion), accounting for more than half of the industry.
While FTX was in the top five, its September trading volumes were only about 10 per cent of Binance’s.
Two big lessons:
— CZ 🔶 Binance (@cz_binance) November 8, 2022
1: Never use a token you created as collateral.
2: Don’t borrow if you run a crypto business. Don't use capital "efficiently". Have a large reserve.
Binance has never used BNB for collateral, and we have never taken on debt.
Stay #SAFU.ðŸ™
Even with the collapse in crypto prices, Mr Zhao’s fortune is estimated at $US18.3 billion ($28.1 billion), according to the Bloomberg Billionaires Index.
Mr Bankman-Fried, meanwhile, saw his $US16 billion ($24.6 billion) fortune all but wiped out in one day.
The Bloomberg Billionaires Index estimates his net worth is now $US991 million ($1.5 billion), a drop of 94 per cent.
In a letter to investors announcing the Binance deal, Mr Bankman-Fried apologised for being “hard to contact the last few days”.
He said he didn’t “have a perfect answer for you” about what the deal would mean “because the details are still being hashed out”.
SBF letter to investors released: pic.twitter.com/NcZAb03zLb
— Will Clemente (@WClementeIII) November 8, 2022
“I wish I had more details for you guys right now; I don’t yet,” he wrote.
“Our first priority is to protect customers and the industry; that’s been guiding what we do. We’re optimistic that we’ll accomplish all of those, which means that we’ll soon be focusing on our second priority: our shareholders.”
He added, “I’m sorry I didn’t do better, and am going to do what I can to protect customer assets, and your investment.”
Cory Klippsten, CEO of bitcoin financial services provider Swan.com, said that due to their large holdings of extremely volatile assets, crypto firms were “inherently fragile, susceptible to a Lehman-like collapse at any time”.
“And the only hope once under pressure is that another player will bail them out, as we’ve seen with Binance and FTX,” he told The Wall Street Journal.
Originally published as ‘Craziest day ever’: Bitcoin collapses as FTX agrees to sell to rival Binance amid liquidity fears
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