Finance

Here’s the rundown on the Binance and FTX fiasco as market go RED

Published

2 years ago

November 8, 2022

The largest crypto exchange by volume (Binance) and the third-largest crypto exchange by volume (FTX) faced off in recent days after Binance CEO Changpeng “CZ” Zhao tweeted that his exchange would slowly withdraw billions of its holdings in FTX’s native token, FTT, “due to recent revelations that have came to light.”.

But first, let’s take a few steps back.

Concerns surrounding FTX’s liquidity grew following a Thursday report from CoinDesk about the balance sheet of Alameda Research, a crypto trading firm once run by FTX CEO Sam Bankman-Fried. Alameda holds $14.6 billion in assets with $8 billion in liabilities as of June 30, CoinDesk reported.

The report showed Alameda’s largest asset was about $3.66 billion of “unlocked FTT” and $2.16 billion of “FTT collateral.” (FTT is the token behind FTX.) This means the $5.82 billion in total FTT that Alameda owns is equal to 193% of the total known FTT market cap, which is about $3 billion, according to CoinMarketCap data.

“The issue is that Alameda cannot sell even small amounts of their FTT holdings without heavily impacting the price,” Marcus Sotiriou, an analyst at the publicly listed digital asset broker GlobalBlock, said in a note. “Data from CryptoQuant [ … ] tells us that there are only around 200-300 active addresses trading the FTT token, which is very small in comparison to many other large caps. Hence, large sell orders would crash the FTT price, due to being illiquid.”

Binance chief executive officer Changpeng Zhao (CZ) said in a Twitter thread on Tuesday that he had no intention of picking a fight with FTX CEO Sam Bankman-Fried (SBF) — even though CZ’s tweet announcing the liquidation of the FTT token from the world’s largest crypto exchange prompted some users to withdraw from FTX following Zhao’s surprise sale announcement.

“I was out with friends yesterday when the topic of whale alerts came up. Following our principles, I decided to be transparent. So I wrote a thread in 5 mins, and posted it,” said Zhao in the Tuesday thread. “Little did I know it was going to be “the straw that broke the camel’s back.”.

Zhao on Monday announced that Binance would slash all FTT tokens on its books due to “recent revelations,” and then retweeted a post showing nearly 23 million FTT tokens were moved to the Binance exchange.
A report from crypto media outlet CoinDesk last week revealed a balance sheet of FTX’s sister company Almeda Research, suggesting that SBF’s empire might have liquidity and insolvency issues..

“Funny memes, media & some people tried to color this as a ‘fight.’ Sorry to disappoint, but I spend my energy building, not fighting,” said Zhao in the tweet thread..

FTX experienced a run on withdrawals on Monday. More than US$451 million worth of crypto deposits have come out from the crypto exchange in the last seven days, as of 12:00 a.m. Hong Kong time, according to crypto data analytics firm Nansen. An FTX Monday tweet shows users were complaining of slow withdrawals..

“We have been processing all withdrawals, and will continue to be,” SBF assured in a Monday tweet..

“The tough part is that it’s always sensible to withdraw, even if you think the rumors are like 1% likely to be true,” said Larry Cermak, vice president of research at The Block. Cermak believes the chance of FTX insolvency is “near 0%.”

Sam Bankman-Fried was once admired as the king of crypto.

Now Alameda and FTX are rumoured to be on the brink of insolvency.

🧵: Here's how it all went wrong for SBF and FTX. 👇
— Miles Deutscher (@milesdeutscher) November 7, 2022

As this situation evolves, I'll keep you updated by posting underneath this thread.

So make sure to follow me @milesdeutscher and turn on post notifications to stay updated.
— Miles Deutscher (@milesdeutscher) November 7, 2022