Crypto’s day of reckoning has arrived

by · November 11, 2022

Who would have thought that the implosion of Terra, the collapse of Three Arrows Capital, and the bankruptcies of Celsius and Voyager would not be the most horrific crypto stories of 2022? In retrospect, even after all these tumultuous events, crypto’s day of reckoning—and the new low for the cycle—had not arrived.

The industry’s cyclical performance occurred this week when FTX – the world’s second largest crypto exchange – was feared to be insolvent and on the verge of collapse. These fears stemmed from FTX’s incestuous relationship with Alameda Research, a trading firm founded by FTX CEO Sam Bankman-Fried — It turned out that FTX was trading on Alameda revenue to prop up its business, offering its illiquid and useless FTX Token (FTT ) for Alameda’s Tether — Amid reports that FTX’s native token accounted for roughly 40% of Alameda’s assets, Binance CEO Changpeng Zhao announced that his exchange would liquidate all of its FTT holdings. It was the same Zhao, also known as CZ, who offered to buy FTX a few days later to save it from impending collapse. While Bankman-Fried agreed to the deal, credible rumors suggest that CZ is pulling out due to a large hole in FTX’s finances. (These rumors have since been confirmed to be true.)

This week’s Crypto Biz newsletter is not for the faint of heart.

Breaking: Binance CEO Announces Intent to Buy FTX to ‘Help Cover Liquidity Squeeze’

After attempting to quash rumors of FTX’s liquidity problems, Bankman-Fried announced on November 8 that his firm had agreed to a Binance takeover – a move that would ensure all existing users would be made whole. “I know there have been rumors in the media about conflict between our two exchanges, but Binance has shown time and time again that they are committed to a more decentralized global economy while working to improve industry relations with regulators,” Bankman-Fried tweeted. (It was later reported that CZ and Binance looked under the hood of FTX and didn’t like what they saw, so they pulled out of the deal.)

Binance CEO Shares “Two Big Lessons” After FTX’s Liquidity Crisis

Whether he likes to admit it or not, CZ played a major role in FTX’s collapse this week when he tweeted his intention to liquidate Binance’s FTT holdings. As the whole ordeal played out, CZ sounded off on “two big lessons” he learned from the FTX saga: “Never use a token you created as collateral” and “Don’t borrow if you’re running a crypto business.” He also confirmed that “Binance has never used BNB (BNB) as collateral, and we have never taken on debt.” Massive debt, poor asset management and highly risky trading practices have been common themes in this year’s crypto market chaos.

Galaxy Digital reveals $77M exposure to FTX, $48M likely locked in withdrawals

As FTX began to unravel, it didn’t take long for companies to step forward and recognize their exposure to the declining crypto derivatives exchange. On November 9, blockchain finance company Galaxy Digital revealed that its exposure to FTX was worth nearly $77 million consisting of cash and digital assets. The company also acknowledged that $48 million of the total amount was likely locked in withdrawals. Like many other collapsing exchanges and lenders, FTX announced it was halting withdrawals to prevent a bank run while the FTT token was in freefall.

Meta joins major tech layoffs, lets go of 11,000 employees

If the crypto news wasn’t bad enough, Facebook operator Meta announced this week that it would lay off about 13% of its staff, equivalent to 11,000 people. Like other big tech companies, Meta is hemorrhaging money due to skyrocketing costs and a declining economy. Meta’s metaverse division, called Reality Labs, lost $3.672 billion in the third quarter, casting serious doubt on its metaverse ambitions. Some of Meta’s shareholders are becoming concerned that Mark Zuckerberg’s metaverse experiment may not bear fruit. Zuck could dish out as much as $100 billion to his metaverse business over the next ten years. Is there a chance you want to do?

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