Bitcoin falls to two-year low as Binance exits FTX
Cryptocurrencies extended their slide for another day on Wednesday as the market absorbed the potential collapse of popular crypto exchange FTX.
Prices were pressured to start the day and plunged in the late afternoon when Binance, the largest global exchange by volume, abandoned plans to buy Sam Bankman-Fried’s FTX following a due diligence examination and recent reports of mishandled client funds and alleged US agency investigations of FTX.
Bitcoin fell 12% before 4:30 PM ET to just under $16,000, hitting a low not seen since November 2020, according to Coin Metrics. It hit its all-time high of $68,982.20 a year ago Thursday. Meanwhile, ether fell 14% to $1,128.87.
The Bankman-Fried empire quickly unraveled after a report last week revealed that a large portion of the balance sheet of Alameda Research, the trading company where Bankman-Fried was also CEO, had been concentrated in FTX Token (FTT), the original token of the FTX trading platform.
After some sparring on Twitter with Bankman-Fried, Binance CEO Changpeng Zhao announced that his company was offloading FTT on its books, leading to a run on the popular FTX exchange and a liquidity crisis.
FTX counts some of the biggest names in finance – including SoftBank, BlackRock, Tiger Global, Thoma Bravo, Sequoia and Paradigm – among its investors.
FTT fell another 63% on Wednesday, after plunging more than 75% the previous day.
The The Solana Token also continued to fall. It was last down 45%, after falling more than 26% on Tuesday. Alameda Research, the trading firm owned by Sam Bankman-Fried, which also runs FTX, was an early backer of the Solana project.
“Market factors such as providing SOL token liquidity as well as support for Solana ecosystem projects on FTX exchange have been a key driver of Solana’s success,” Bernstein’s Gautam Chhugani said in a note on Wednesday. “This is an undesirable event for the Solana ecosystem in the short term. Furthermore, given FTX/Alameda’s balance sheet situation, there may be pressure on Solana stocks in the short term as the situation resolves.”
The bomb will set the crypto industry back. Analysts anticipate further regulatory scrutiny of offshore exchanges, where the majority of crypto derivatives trading takes place. It is also unclear how much financial contagion will enter the rest of the market.
In addition, Bankman-Fried, known as SBF, had recently been hailed as a “white knight” in the industry, coming to the rescue of crypto services firms such as BlockFi and Voyager that succumbed to the crypto contagion last spring.
For newcomers to the crypto market, SBF and FTX became the faces of the industry, secured the naming rights to the Miami Heat basketball team’s stadium last year, brought in Tom Brady and Giselle Bündchen as company ambassadors, and became a mega-donor to Democratic politics.
“Given the public-facing nature of FTX CEO Sam Bankman-Fried and the size of FTX, we believe this week’s events could lead to some loss of consumer confidence in the crypto industry, beyond what was seen in the wake of 3AC, Celsius, and Voyager events that took place earlier this year,” especially if panic spreads and crypto prices continue to fall, KBW analysts said in a note on Tuesday. “It may take time for customers to regain trust in the industry, by and large (and we think regulation can help this).”
