FTX crash wipes billions from market as Binance steps in to buy crypto rival
Binance has swooped to rescue "and acquire" cryptocurrency exchange FTX, after tweeting on Sunday they were liquidating their holdings in the beleaguered exchange's native FTT (FTT-USD) token, which caused an early week bank run.
The FTX cryptocurrency token plummeted on Tuesday, with over 40% wiped from its value in the last 24 hours, causing a route across crypto markets as contagion fears spread.
Panic is reverberating through crypto markets as investors fear another meltdown similar to that which crashed crypto hedge fund Three Arrows Capital in July.
The crash is linked to crypto-billionaire Sam Bankman-Fried's FTX exchange and his trading firm Alameda Research.
On Wednesday Binance CEO Changpeng 'CZ' Zhao tweeted that he was coming to rescue FTX, after on Sunday saying that Binance would dump their entire holdings in FTT, which caused a rout amongst FTX investors.
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CZ tweeted: "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 FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days."
According to data from coinmarketcap.com, the combined crypto market cap has fallen over 5% in the last 24 hours to $965bn — below the psychological $1tn level.
This represents an approximate $50bn wipeout in combined cryptocurrency markets since the crisis at FTX.
The FTX exchange token FTT has seen its price plummet by over 40% in the last 24 hours, to stand at $15.31.
The fall began when CZ tweeted that he would sell Binance's considerable FTT holdings.
CZ's reason for liquidating the large FTT holding was that he fears the token might collapse in the same manner as Terra/Luna, which plummeted to near zero in May.
On Sunday, CZ tweeted: "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."
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
Recent media reports speculated that Bankman-Fried's trading firm Alameda Research iss overexposed to the collapsing FTT token, and that the FTX exchange is teetering on insolvency.
Bankman-Fried doused cold water on these claims arguing that the exchange is capable of processing customer withdrawals.
In a Twitter thread on Monday, he said: “FTX is fine. Assets are fine.
“It’s heavily regulated, even when that slows us down. We have GAAP audits, with > $1b excess cash. We have a long history of safeguarding client assets, and that remains true today.”
Alameda CEO Caroline Ellison also debunked the recent speculation, stating that it painted an incomplete picture of the company’s financial make-up.
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Until recently, Bankman-Fried was being hailed by some as the saviour of the cryptocurrency industry, swooping to the rescue of beleaguered crypto-firms in the wake of the Terra/Luna crash with credit lines and bailouts.
For example, he bailed out embattled brokerage Voyager Digital (VYGVQ) with a $70m line of credit.
His efforts to support collapsing cryptocurrency firms over the last six months have led to the 30-year-old billionaire being compared to JP Morgan during the crisis of 1907.
Bahamian registered cryptocurrency exchange FTX is the third largest in the world by volume of trade, slightly behind the California-based Coinbase (COIN).
However, FTX's trade volume of around $3bn per day is dwarfed by the volume on the Binance exchange, which has a daily trade volume of around $30bn.