The crypto market came crashing down as Binance, the juggernaut of crypto exchanges, retracted itself from buying FTX. Binance and FTX are two of the world’s biggest crypto exchanges, and any news headline with their relevance is bound to influence the crypto market. Last year, Binance, the world’s largest crypto exchange, traded over $7 trillion in volume. This embodied 55.1% of the total volume that was globally traded in exchanges. FTX — the fastest crypto exchange, on the other hand, was thriving with its splendid Superbowl commercials. The company also spent top dollar to partner with world-class athletes like Tom Brady and Stephen Curry.
Binance announced buying FTX on November 9 but altered the decision in less than 24 hours. This had a knock-on effect on investors, who suffered a loss of $180 billion, which was wiped out of crypto markets.
Why did Binance negate the deal?
To understand this, let’s rewind it to a few moons back when investors started pulling out of FTX. FTX did not have enough cash reserves to cater to the withdrawals. Resultantly, the company had to freeze its withdrawals. Soon after that, the CEO of Binance, Changpeng Zhao, tweeted that Binance is selling all its FTT, the native tokens of FTX. This made people question the financial health of not only FTX but also of Alameda Research, FTX’s sister company, which ran largely on FTT. This led to a bloodbath in all of the crypto markets.
To cool down the disaster, Binance came to save the bacon with its rescue plan of acquiring FTX, which was valued at $32 billion earlier this year. But, after corporate due diligence and reports about the mishandling of customer funds, Binance took a U-Turn from FTX by scrapping the letter of intent to buy its smaller rival.
The Aftermath of Binance’s FTX bailout:
After the collapse of one of the largest deals in the history of crypto markets, other cryptocurrencies had to face a rough patch. Here are a few numbers to demonstrate the graveness of the event:
- Bitcoin’s price dropped down by 28%, and Ethereum slipped by 30%.
- This Wednesday, Bitcoin prices fell below $16,000 for the first time in two years.
- Ethereum plunged below the $1,100 mark on Wednesday.
- In less than 72 hours, FTX’s native token, FTT, lost 90% of its value.
- Solana, which was supported by FTX, tanked 35%.
- KAVA, THORchain, and Curva DAO Token crashed 12-18% each.
- Sequoia Capital, a venture capital firm, decided to write off its investment of $210 million in FTX.
Source: Economic Times, Times of India, Coindesk, Forbes
The crypto market was already in deep red, and the FTX backout only made it worse, due to which investors lost their trust in risky assets. The repercussions might not stop here. Other smaller exchanges with exposure to FTT or any other FTX assets in their portfolio might also suffer.