The crypto market has taken a heavy hit as the news regarding Binance announcement to buy out rival FTX in a bailout bid comes to light.
- Binance bails FTX out of its “Liquidity Crunch” by proposing to buy out the crypto exchange and help its situation.
- This comes after Binance revealed that it would sell its FTT holding, which was announced over the weekend.
- Sam Bankman-Fried, CEO of FTX, has acknowledged Binance’s help in the situation, and investors are hopeful that the market will hold rather than continue plummeting.
One of the biggest crypto exchanges in the world, Binance, said it had reached an agreement to acquire rival FTX. The crypto company has been struggling to handle a spike in withdrawals as the market teetered on the brink of another collapse.
There are many speculations surrounding the acquisition’s amount, but the privately held FTX had once been valued at $32 billion.
On Tuesday, Changpeng “CZ” Zhao tweeted, “This afternoon, FTX asked for our help.” He continued, “There is a significant liquidity crunch. To protect users, we signed a non-binding [letter of intent] intending to fully acquire http://FTX.com and help cover the liquidity crunch.”
The news briefly helped digital assets recover, but it wasn’t enough to calm worried investors.
According to CoinDesk, Bitcoin fell more than 10% on Tuesday, reaching a 52-week low of about $17,600. FTT, the internal currency of FTX, crashed and lost 85% of its value. Other industry-related digital assets and companies, including Coinbase, also plummeted.
Sam Bankman-Fried, the founder and CEO of FTX, is one of the most prominent players in the cryptocurrency industry. Over the summer, he effectively operated as a one-man bank, spending close to $1 billion to rescue struggling companies as the value of cryptocurrencies fell.
The deal showed the crypto industry’s ongoing instability, intensified last spring by a $2 trillion crash that wiped out the funds of many new investors. While FTX is by far the biggest victim, that decline destabilized several of the top crypto companies. Before its finances fell apart almost immediately, it was considered one of the most agile and well-run cryptocurrency companies.
The Block, a cryptocurrency research company, said that at one time on Tuesday, FTX completely stopped processing withdrawals. The exchange appeared to be in a “liquidity crunch,” which meant it lacked the resources to meet the demand for withdrawals.
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Sam Bankman-Fried, the exchange’s chief executive, apologized for not communicating with staff recently and noted that the company had experienced $6 billion in net withdrawals during the preceding 72 hours instead of tens of millions of dollars in inflows and outflows on a regular day.
FTX, which is domiciled in the Bahamas and provides trading services that are not permitted in the United States, was able to “clear out liquidity crunches,” according to Mr Bankman-Fried. He expressed his gratitude to Mr. Zhao for reaching an agreement on Twitter. The business also has a more limited operation in the United States; according to Mr. Bankman-tweets, FTX.US is still processing withdrawals and wouldn’t be included in the agreement with Binance.
Concerns about FTX and Alameda Research, Bankman Fried’s trading firm, started last week after a report by cryptocurrency news website CoinDesk claimed that a large portion of Alameda’s balance sheet was made up of FTT, which is a rather illiquid token.
Mr. Zhao and Mr. Bankman-Fried got into a public argument when Binance said it would sell its FTT shares. On Monday, Mr. Bankman-Fried posted on Twitter, “A competitor is going after us with false rumours.” He added, “The FTX is good. Capital is good.”
But Binance’s actions also caused FTT’s price to plummet. It had decreased by nearly 63% by Tuesday in just one day. With the values of Bitcoin and Ether also declining, the rest of the cryptocurrency market suffered.
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