The almost-collapse of FTX, one of the biggest cryptocurrency exchanges in the world, has shook the market for digital assets. After a spike in withdrawals led to a “significant liquidity crunch,” FTX and its larger rival Binance reached a bailout agreement on Tuesday.
Withdrawals totaling $6 billion (£5.2 billion) were reportedly sparked in just three days by worries about FTX’s financial stability. According to Binance, FTX’s non-US unit will be purchased, subject to due diligence.
Sam Bankman-Fried, the founder of FTX, and Changpeng “CZ” Zhao, the CEO of Binance, are two of the most influential figures in the cryptocurrency industry and prominent rivals.
Zhao, who tweeted on Sunday that Binance would sell its holdings of FTX’s digital token, known as FTT, contributed to the pressure on FTX.
“Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books,” he said. FTT has lost almost 80% of its value this week.
When Zhao tweeted on Tuesday, “This afternoon, FTX requested our assistance. There is a serious liquidity crisis “.
Despite having signed a letter of intent to purchase the company, Binance stated that it had “the discretion to terminate the agreement at any time.”
Moreover, Mr. Bankman-Fried stated on Twitter: “The withdraw backlog is currently being cleared by our teams. Liquidity will be cleared, and all assets will be covered in full.”
“The important thing is that customers are protected… We are in the best of hands,” he added.
Additionally, Bankman-Fried mentioned that the US division of FTX was a separate business and “not currently impacted by this.”
Sam Bankman-Fried is one of the biggest personalities in the cryptocurrency industry.
The young, outspoken owner of FTX has been a ray of hope for investors of all sizes ever since the “cryptocrash” in the spring.
Bankman-Fried appeared to be succeeding while other businesses were struggling.
The 30-year-old had participated in high-profile media interviews, secured lucrative acquisitions, and provided generous rescue packages for struggling businesses over the previous six months.
Those candid interviews are now coming back to haunt him as information about his company’s precarious finances surfaced in CoinDesk reporting.
“More crypto exchanges will fail,” he said in one interview adding that some firms are “secretly insolvent”.
Now it appears that his company will soon be added to the growing list of cryptocurrency companies that have failed due to a persistent issue: a lack of cash reserves.
Although not the first company to fall victim to the so-called “crypto winter” we are currently experiencing, FTX is by far the biggest.
“This is a black swan event that adds more fears in the crypto space. This cold winter for crypto now takes on more fear,” Dan Ives, senior equity analyst at Wedbush Securities told the BBC.
The market for digital assets was rocked by the news, and cryptocurrencies plunged.
The price of bitcoin dropped more than 10% to its lowest point since November 2020.
Online trading platform Robinhood saw a loss of more than 19% in stock value, and cryptocurrency exchange Coinbase saw a decline of 10%.
(Adapted from BBC.com)
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