Bitcoin fell sharply on Tuesday (8) after rumors indicated that FTX was insolvent and on-chain data showed that the exchange founded by Sam Bankman-Fried had even stopped processing withdrawals.
That’s no surprise, as FTX is the third largest in the market in terms of trading volume. In addition, other statistics also help us understand the size of the brokerage.
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 (R$7.3 billion).
Last Thursday (3), Sam Bankman-Fried was interested in buying one of its biggest rivals, Coinbase. Listed on Nasdaq, Coinbase shares are down 78% since its IPO in May last year.
“Is there any speculation about doing an investment round on Coinbase, any truth?”
“Coinbase is a big player, I’m always willing to talk about any business. I look forward to finding ways to work with them.”replied Sam Bankman-Fried of FTX. “If you look at heavy retail platforms, these are the platforms we’re looking at whether we’re collaborating or from a different perspective, because they’re platforms that complement what we have, an institution-centric platform.”
Finally, in recent weeks, SBF has also become a source of controversy by expressing opinions on the regulation of cryptocurrencies. His lyrics were so controversial that a YouTuber panicked live while claiming that Sam was trying to destroy the industry.
The Rise and Fall of FTX
Sam Bankman-Fried’s binge ended in the past week. It all started with data published by CoinDesk pointing out that Alameda Research, an affiliate of FTX, had inconsistencies in its cash.
Basically, Alameda’s balance sheet mainly consisted of FTT, a token issued by FTX itself. In addition to not having as much liquidity to support a $5.72 billion sale of FTT, it also showed that FTTs deemed “out of circulation” were in fact at risk of being sold.
The case attracted the attention of several giants, both inside and outside the industry. Last Sunday (6) Changpeng Zhao, founder of Binance, to compare the risks of FTT with those of Earth (LUNA).
“The liquidation of our FTT is just post-exit risk management, learning from LUNA. We’ve been supportive before, but we’re not going to make love after the divorce. We’re not against anyone. But we will not support people who lobby behind their backs with other players in the industry.”
Another interested in the subject was Michael Burry, famous for his story in the movie The Big Short (2015), in which he was played by Christian Bale.
“There are no dogs on this hunt, but this was interesting to read last week.”
The article shared by Burry gives you an idea of how FTX has become so big.
First, FTX created the FTT and pushed the price up. After that, the brokerage showed its earnings to other investors, raising money through stock sales or loans. Finally, the cycle starts again, with a new appreciation of the FTT, attracting even more money.
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 brokerage also acquired an eSports team, TSM, for approximately $210 million, $1 billion, among many other six- or seven-figure companies.
FTX Brokerage Confirmed Insolvency Problems
On Tuesday afternoon (8), Sam Bankman-Fried took to Twitter and confirmed rumors that his brokerage was truly insolvent, unable to honor withdrawals, even with a past considered glorious.
At the same time, Changpeng Zhao confirmed that Binance had already signed documents proving that it plans to buy FTX to basically save the market.
With the news, Bitcoin price managed to recover and returned to trading above $20,000 after an exciting day. However, the recovery did not last long and BTC recorded even lower prices in its wake, even losing support at $19,000.
The reason for the decline is related to 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. It’s also possible that your team has not yet analyzed FTX’s money to make a decision.
“We expect the FTT to be highly volatile in the coming days as things develop,” said Changpeng Zhao.
Bitcoin could also be extremely volatile in the coming months
Since it is impossible to know how long Binance will analyze FTX’s accounts, the market will be held hostage to this acquisition. If Binance pulls out of the deal, the FTT token – which has lost 57% in the past 24 hours – will leave a gap of another BRL 3.3 billion for its investors.
Since FTX is the third largest exchange in the world, behind Coinbase and Binance itself, this also affects Bitcoin and other cryptocurrencies. Ethereum, for example, has already lost 13% of its value in the past 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 crash by buying out its bankrupt competitor, or else the market would enter a period of even lower declines.
Finally, the mid-2022 FTX fiasco shows that the industry has not learned from the mistakes of the past, another blot on the history of cryptocurrencies.
Source: Live Coins
John Cameron is a journalist at The Nation View specializing in world news and current events, particularly in international politics and diplomacy. With expertise in international relations, he covers a range of topics including conflicts, politics and economic trends.
