Bitcoin fell sharply on Tuesday (8) after the Rumors pointed out that FTX was insolvent and on-chain data revealed that the exchange founded by Sam Bankman-Fried had even stopped processing withdrawals.
There is no surprise in this, after all, FTX is the third largest in the market by trading volume. Additionally, other metrics also help us understand the size of the exchange.
In early July, FTX acquired the bankrupt BlockFi for a few million dollars. At the end of September, FTX bought the also bankrupt Voyager Digital for US$1.42 billion.
Last Thursday (3), Sam Bankman-Fried became interested in buying one of his biggest rivals, Coinbase. Listed on Nasdaq, Coinbase shares are down 78% since their IPO in May of last year.
“IS THERE ANY SPECULATION ABOUT DOING AN INVESTMENT ROUND IN COINBASE, IS THERE ANY TRUTH TO THAT?”
“Coinbase is a great player, I am always willing to talk about any business. I am excited to find ways to work with them. When you look at heavy retail platforms, these are the platforms we’re looking at, whether collaboratively or from another perspective, because they’re platforms that complement what we have, an institution-centric platform,” responded Sam Bankman-Fried of FTX.
Finally, SBF has also become a source of controversy in recent weeks by giving opinions on the regulation of cryptocurrencies. His text was so controversial that a youtuber went crazy on live while claiming that Sam was trying to destroy the industry.
The rise and fall of FTX
The Sam Bankman-Fried binge ended last week. It all started with data published by CoinDesk, noting that Alameda Research, an affiliated company of FTX, had inconsistencies in its cash.
In short, Alameda’s balance sheet was mostly made up of FTT, a token issued by FTX itself. In addition to not having as much liquidity to support sales of $5.72 billion worth of FTT, this also showed that FTTs considered “out of circulation” were, in fact, at risk of being sold.
The matter caught the attention of several giants, both inside and outside the industry. Last Sunday (6), Changpeng Zhao, founder of Binance, even compared the risks of FTT with those of Terra (LUNA).
“THE LIQUIDATION OF OUR FTT IS JUST POST-EXIT RISK MANAGEMENT, LEARNING FROM LUNA. WE HAVE BEEN SUPPORTIVE BEFORE, BUT WE ARE NOT GOING TO MAKE LOVE AFTER THE DIVORCE. WE ARE NOT AGAINST ANYONE. BUT WE WILL NOT SUPPORT PEOPLE WHO PUSH OTHER INDUSTRY PLAYERS BEHIND THEIR BACKS.”
Another who was interested in the subject was Michael Burry, famous for telling his story in the movie The Big Short (2015), in which he was played by Christian Bale.
“NO DOGS ON THIS HUNT, BUT THIS WAS AN INTERESTING READ LAST WEEK.”
Michael Burry comments on the FTX case.
In the article shared by Burry, you can get an idea of how FTX got so big.
First, FTX created the FTT and inflated its price. After that, the exchange showed its profits to other investors, raising money through loans or stock sales. Finally, the cycle begins again, with a new appreciation of the ITF, which attracted even more money.
Graph showing just how giant FTX has become. Source: Dirty Bubble Media.
Eventually FTX became famous all over the world. In addition to buying the names of a $135 million stadium, now known as FTX Arena, the exchange also acquired an eSports team, TSM, for around $210 million, among many other six- or seven-figure deals.
FTX exchange confirmed insolvency issues
On Tuesday afternoon (8), Sam Bankman-Fried appeared on Twitter confirming rumors that his brokerage was truly insolvent, unable to meet withdrawals, even with a past considered glorious.
At the same time, Changpeng Zhao confirmed that Binance had already signed documents showing their intention to buy FTX to basically save the market.
With the news, the price of Bitcoin managed to recover, trading back above $20,000 after a tense day. However, the rebound did not last long and BTC priced even lower, even losing support at $19,000.
BTC/USD, on the candlestick chart, and FTT/USD, in blue, continue to float together amid the FTX crisis.
The reason for the fall is related to the uncertainty about this deal between Binance and FTX. After all, Zhao made it very clear that Binance could pull out of the deal at any time. Also, it is possible that his team has not yet analyzed the FTX cash to make a decision.
“WE EXPECT THE FTT TO BE VERY VOLATILE OVER THE NEXT FEW DAYS AS THINGS DEVELOP”.CHANGPENG ZHAO COMMENTED.
Bitcoin could also be extremely volatile in the coming months
As it is impossible to know how long Binance will analyze the FTX accounting, the market will remain hostage to this acquisition. If Binance pulls out of the deal, the FTT token, which has lost 57% in the last 24 hours, will leave a multi-million hole for its investors.
As FTX is the third largest exchange in the world, behind only Coinbase and Binance, this is also affecting Bitcoin and other cryptocurrencies. ethereumfor example, has already lost 13% of its value in the last 24 hours.
Therefore, Bitcoin could be extremely volatile in the coming months due to the FTX crisis. In other words, Chanpeng Zhao could save the industry from a massive downturn by buying out his bankrupt competitor or see the market enter a period of even lower declines.
Finally, the FTX fiasco in mid-2022 shows that the industry has not learned from the mistakes of the past, being one more stain on the history of cryptocurrencies.
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