Daily Management Review

Cryptos Try To Stabilize As The Binance-FTX Deal Cools The Market


Cryptos Try To Stabilize As The Binance-FTX Deal Cools The Market
After a sharp and broad drawdown on Tuesday due to concerns over the stability of the exchange FTX, a rush of withdrawals, and ultimately a bailout deal from bigger rival Binance, cryptocurrencies were jittery and searching for a floor on Wednesday.
The largest cryptocurrency by market value, Bitcoin, was down 1% at $18,400 on Wednesday following a 10% drop on Tuesday, which was its worst day since mid-August. The next largest cryptocurrency, ether, has decreased by almost 18% since early Tuesday.
However, the market's attention was on FTT, the FTX-related token, whose financials have been causing investor anxiety since last week. FTT fell by 72% on Tuesday and by another 22% on Wednesday, reaching a two-year low of $4.25.
The CEO of Binance, Changpeng Zhao, put pressure on FTX in part by announcing on Sunday that Binance would liquidate its holdings of the rival's token due to unnamed "recent revelations."
Market participants were shocked when Binance announced on Tuesday that it had reached a non-binding agreement to purchase FTX's non-U.S. unit in order to address what it described as a liquidity crunch.
Sam Bankman-Fried, the CEO of FTX, and high-profile rival Zhao reached a deal after a week of financial rumors that led to $6 billion in withdrawals in the 72 hours prior to Tuesday's deal.
Another "alarm warning" for the battered cryptocurrency market, according to Kami Zeng, head of research at Hong Kong-based Fore Elite Capital Management, who also advises investors to exercise caution for the time being.
"... the whole thing still looks like a dark hole. We are not sure how contagious this could be, but I believe institutions need to show their proof of reserves asap. Confidence does not recover before that," Zeng said.
The uncertainty would harm all assets because market liquidity had decreased, he claimed.
The token used on Binance, Binance coin, was also affected. It had a $52 billion market value and was trading at $317.11, down 6% from Tuesday.
Zann Kwan, a board advisor at Raffles Family Office and a member of the board of the Singapore association ACCESS, which includes participants involved in cryptocurrency and blockchain, collectively known as decentralized finance, issued a warning of wider and longer contagion (defi).
"Alameda is a big market maker in the defi market. More things will unfold," she said, referring to Alameda Research, a trading firm founded by Bankman-Fried that has close ties with FTX.
Analysts compared it to Terraform Labs' demise earlier this year after its stablecoin, TerraUSD, crashed. Terraform Labs' demise sparked a string of bankruptcies, including those of Singapore fund Three Arrows Capital and American fintech companies Voyager Digital and Celsius.
Bankman-Fried stated that while his teams were attempting to reduce the backlog of withdrawals, market jitters regarding the status of the bailout and the severity of the issues kept traders on edge.
The deal, according to Bobby Ong, co-founder of the cryptocurrency analytics website CoinGecko, could solidify Binance's dominance of market turnover, but it's unclear how it will affect the wider landscape.
"It's probably safe to expect this move will further consolidate their lead, as FTX was a top-10 player with a sizeable share of volumes," he said.
"However, how existing users of FTX will respond to this development remains to be seen. Will they continue to trade with FTX, or migrate to other exchanges - either centralised or decentralised?"
We are aware of the developments between FTX and Binance, and we are engaging FTX in our capacity as shareholders, Temasek Holdings, a subsidiary of the Singaporean government and a shareholder in FTX, said in an email to Reuters.
It is unknown whether the deal between FTX and Binance will close because neither party disclosed its specifics.
The biggest cryptocurrency exchange in the world, Binance, will carry out due diligence in the coming days as a preliminary step in purchasing FTX.com. According to Bankman-Fried, a California native who now resides in the Bahamas, where FTX is headquartered, the U.S. operations of Binance and FTX are not covered by the agreement.
The regulators' reaction to a deal between the two cryptocurrency exchanges is unclear. Antitrust experts warned that U.S. antitrust enforcers might insist on looking into the merger.
According to Reuters' report from last week, Binance is also being looked into by the US Justice Department for allegedly breaking money-laundering laws. This year has seen a number of inquiries into Binance's problematic past with financial regulatory compliance.
"We don't know whether the monopoly will be a fact", Zeng said. "There must be tons of regulatory pressure for this deal."
"What is fact is that Binance has been in the dominant position for long. As long as the leader is putting the customers first, pursuing a compliant and transparent framework, welcoming fair competition and supervision, the industry will grow its way forward."