Bitcoin prices fall to two-year low on concerns about FTX-Binance deals
Bitcoin prices fell to a two-year low on Wednesday morning as investors continue to grapple with an emergency deal struck between two of crypto’s biggest exchanges, Binance and FTX.
Bitcoin hit $17,415 early Wednesday morning, its lowest point since November 2020, according to Coinmarketcap. It is down 10.8% in the last 24 hours, trading above $17,655.
The decline comes as the unexpected deal – far from set in stone in a non-binding letter of intent – raised fears among investors and analysts that FTX’s problems could spread throughout the crypto universe.
“FTX’s chairman Sam Bankman-Fried was the white knight who has saved companies through most of this crypto winter,” Edward Moya, senior market analyst at Oanda, told Yahoo Finance on Tuesday. “Seeing one of the big players waving the white flag makes a lot of people nervous that more pain could be coming.”
Other cryptocurrencies also plunged.
The second largest cryptocurrency, Ether (ETH-USD) sold by 17% in the last day from $1,448 to $1,164. FTX’s exchange token FTT, fell a whopping 71% on the day from $17 to $3. It is now trading above $4.8.
The Solana (SOL) cryptocurrency, which FTX founder and CEO Sam Bankman-Fried strongly backed, has sold 28% in the last 24 hours from $28.19 to $20.
In the past 24 hours, the total market capitalization of all crypto assets has fallen by more than 10% from $980 billion to $880 billion, according to Coinmarketcap and Yahoo Finance charts.
The deal marks one of the darker days for crypto in a tough year for markets. It came as up-and-coming crypto trading venue FTX faced a “significant liquidity crisis,” according to Binance CEO Changpeng Zhao in a tweet on Tuesday, temporarily forcing the rival exchange to pause customer withdrawals on Tuesday morning.
“There’s a lot more concern that contagion risk and other liquidity issues are lurking,” Moya said.
Although Binance can still pull out of the FTX deal, if the merger of two of crypto’s biggest players goes through, it could worsen business competition for other industry firms at a time when trading volumes have fallen, according to analysts.
So far in 2022, total crypto trading volume worldwide across exchanges has fallen by 21% to $86 trillion, according to crypto indexing platform Nomics. In that period, Binance accounted for 21.7% of the total global crypto trading volume, while FTX has a share of 3.96%.
Shares in Coinbase Global (COIN), a competitor of the two firms, closed 11% lower Tuesday from $54.50 to $50.83, even after Coinbase CEO Brian Armstrong so via Twitter that the company “has no significant exposure to FTX or FTT (and no exposure to Alameda),” and less competition would be positive for the major exchange.
Still, Mizuho Securities senior analyst Dan Dolev wrote in a note that “the rapid fall from a crypto exchange shows how volatile the crypto industry can be. This is a red flag for COIN, where the vast majority of revenue comes from trading crypto tokens.”
Shares of Robinood (HOOD) also plunged 19.3%. Bankman-Fried owns a 7.6% stake in the stock and crypto trading platform, according to a May SEC filing.
However, Dolev downplayed today’s “knee-jerk” reaction, pointing out that unlike Coinbase, Robinhood earns only 12% of its revenue from crypto transactions.
As for other affected firms, Pranav Kanade, portfolio manager at VanEck Digital Assets, told Yahoo Finance that the question remains whether FTX’s liquidity crisis came as a result of bad debt.
“You could argue that a lot of the leverage was taken out of the system in May and June this year, but a lot of that was resolved by the FTX bailing out those companies to some degree,” Kanade said. “If it’s bad debt, how much and who are the other entities?”
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David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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