Crypto markets retreat with FTX after Binance exits bailout
By Georgina Lee and Tom Westbrook
HONG KONG/SINGAPORE (Reuters) – Cryptocurrency markets pared big losses on Thursday, with bitcoin near a two-year low as investors worried about the fallout from the implosion of crypto exchange FTX.
Bigger rival Binance walked away from a bailout deal on Wednesday. FTX CEO Sam Bankman-Fried said he was “exploring all options”, but fading hopes of a rescue caused FTX to teeter. A message on the FTX website said: “FTX is currently unable to process withdrawals. We strongly advise against depositing.”
The focus is on the unknown size of customer losses and the hit to sentiment from the latest and possibly biggest collapse in an industry that has become a minefield for investors.
FTX’s native token, FTT is down 90% this week and was trying to stay around $2 — not too far above record lows around $1.50. Bitcoin fell below $16,000 for the first time since late 2020 overnight and was last at $16,435.
Binance withdrew from a non-binding offer to buy FTX after due diligence. Another exchange, OKX, said it was also approached by Bankman-Fried this week, which described $7 billion in liabilities that needed coverage quickly.
“Even Elon Musk would not be able to commit to a deal with $7 billion in liabilities within a few hours of negotiations. It was too much for us,” OKX director of financial markets Lennix Lai told Reuters.
“(It) is a big hole to fill,” he added. “The dagger will continue to hang over the crypto market, as long as the outlook for FTX’s fate remains unclear.”
The Wall Street Journal reported that Bankman-Fried told investors that FTX needed $8 billion to cover withdrawals. FTX did not respond to a request for comment.
“CRISIS OF CONFIDENCE”
There are also early signs that the fallout could spread beyond crypto markets, with jittery stock markets falling on Wall Street overnight. [MKTS/GLOB]
“A top exchange fails – it’s on a different level,” said Danny Chong, CEO of decentralized finance company Tranchess, with potentially wider ramifications than the failure of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital this year.
“People’s funds, including market makers, are still with FTX,” he said. “Just when people thought the crypto winter might not last… along comes another episode like this.”
The US securities regulator is investigating FTX.com’s handling of customer funds and crypto lending activities, according to a source with knowledge of the inquiry.
Bloomberg reported that the US Department of Justice is also looking into the unrest. A DOJ spokesman declined to comment.
Investors are already writing off funds plowed into FTX. Venture capital fund Sequoia Capital wrote down a $150 million exposure to zero on Wednesday. Canada’s Ontario Teachers Pension Plan, Tiger Global and Japan’s Softbank are also FTX investors.
Most crypto players remain bullish on the long term, but are prepared for further falls in the near future. Bitcoin’s 20% loss this week is comparable to the fall in June when Three Arrows Capital came under stress.
“What makes this new phase … problematic is that the number of entities with stronger balance sheets capable of rescuing those with low capital and high leverage is shrinking,” analysts at JP Morgan
“Now that the balance sheet strength of Alameda Research and FTX is in question just a few months after being perceived as strong balance sheet entities, it creates a crisis of confidence and reduces the appetite of other crypto companies to come to the rescue.”
(Reporting by Georgina Lee in Hong Kong and Tom Westbrook in Singapore.; Editing by Shri Navaratnam)
