Crypto exchange FTX has liquidity problems – Binance does not help

Updated 9/11/2022: Binance has pulled out of a potential acquisition of FTX. The reason is investigations by US authorities into FTX and reports of possible misuse of customer funds.

The market reacted in panic. Bitcoin has fallen from over $21,000 to under $16,000 in the past few days (as of November 9, 2022, 10:57 p.m.). Many other coins such as Ether, Ripple, but especially the FTX darling Solana crashed even worse.

Original report from November 8, 2022

The second largest crypto exchange FTX has liquidity problems. FTX CEO Sam Bankman-Fried reported this yesterday via Twitter.

Thanks to the support of the largest crypto exchange Binance, users’ investments are not at risk. Binance has signed a (non-binding) letter of intent to fully acquire

The drama had presented itself over the past few days. The lead roles are occupied by Canadian Changpeng “CZ” Zhao, founder and CEO of currently the largest crypto exchange Binance, and – in the role of the beaten dog – Sam “SBF” Bankman-Fried, founder and CEO of up-and-coming and, depending on the metric, the second or third largest Crypto exchange FTX.

The quirky SBF had an excellent reputation in the crypto scene until a few weeks ago. His geeky TV appearances in shorts, t-shirts and with curly hair helped him achieve cult status. Despite being worth billions, he drives a Toyota Corolla, lives a vegan life and represents the philosophy of effective altruism. In other words, he wants to help as many people as quickly as possible. He is the personified antithesis of the crypto personalities who like to trumpet their financial success with status symbols.

SBF founded the crypto fund Alameda Research in 2017 and the trading platform for crypto derivatives FTX in 2019. The latter grew explosively in a very short time due to interesting trading opportunities. Just two years after it was founded, FTX had one million users and a trading volume of $10 billion per day. FTX bought the naming rights to the Miami Heat stadium for over 100 million. Partnerships with uber basketball player Steph Curry and football star Tom Brady were formed.

Enter CZ. CZ also does not indulge in mere mammon and likes to present himself down to earth with a hoodie and monk-like short haircut. But CZ is a shrewd tactician. In the fast-moving crypto scene, where rows of figures of light are knocked off their pedestals, CZ seemingly survives all storms unscathed. Also as FTX blows to attack Binance’s throne. Because CZ recognized the potential of its opponents early on – and invested in FTX.

Meanwhile, FTX is thriving. In the wake of the hype surrounding the upcoming crypto exchange, the price of the in-house token (FTT) also rose from one to 80 dollars. Only a fraction of it is on the market – the rest remains owned by FTX and Alameda. And they insert the now valuable token into transactions as collateral.

When CZ sells his FTX shares in 2021, he will get 2 billion for it – paid in FTT and BUSD. It is unclear if CZ insisted on this form of payment or if FTX could not pay him in another way. In any case, it not only gave CZ a nice win, but also a means of bankrupting FTX. Because: The demand for FTT is so low that Binance has the power to flood the market and send the price crashing into the abyss. The market leader would thereby reduce his own profit, but he would put the future competitor in great difficulty. It is said that he took too many risks and covered them with FTT.

But CZ has a problem: Sam Bankman-Fried is the darling of the scene. Such an open confrontation could prove to be a shot in the foot. The sacred cow must not be slaughtered (yet).

In the crypto scene, the clocks turn quickly – and the wind can turn sharply. Sam Bankman-Fried found out too. The enormous growth of FTX did not go unnoticed by the authorities. FTX is suddenly in legal trouble in Texas. In addition, it is revealed that SBF supports a bill that is extremely unpopular in the scene.

SBF is presented in a well-received podcast. He becomes entangled in contradictions, the wings of the former high-flyer are clipped live by the brilliant orator Erik Voorhees. The mood changes.

Now is the time. On Twitter, CZ sorted SBF. He plotted against him with the regulatory authorities. With the caveat that he only wants to create transparency, he announces that Binance will sell all of its FTT tokens.

The message triggers what it should: in anticipation of falling prices, FTT owners try to save what can be saved and panic sell. The price drops quickly. From just under $20 to $3.15 in one day. Frightened customers, children burned by the last bankruptcies, withdraw their savings from FTX – the trading platform runs into liquidity problems. It comes as it should: CZ and Binance present themselves as the golden savior.

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