In the early morning of the 9th, FTX CEO Samuel Bankman-Fried (SBF) and Binance CEO Changpeng Zhao (CZ) announced the news of “Binance’s acquisition of FTX” through social media. Changpeng Zhao confirmed on Twitter that the two cryptocurrency exchange giants signed a non-binding letter of intent. However, the message content of this post far exceeded market expectations. It mentioned that FTX has experienced an obvious liquidity crisis. Moreover, since the letter of intent is not binding, Binance can withdraw from the transaction at any time.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
FTX CEO SBF issued a document on the evening of the 7th, saying, “FTX is fine, and all assets are fine.” At the same time, SBF reiterated that “FTX has sufficient funds to protect all customer assets. We do not use customer assets for investment. We have been processing all withdrawals and will continue to do so”, SBF made a cry of confidence in an attempt to appease the market and FTX users, but this post has now been deleted by SBF.
Investors go from worry to carnival, then from carnival to panic
From the publication of SBF on the evening of the 7th to the afternoon of the 8th, some investors still maintained a positive attitude towards the operation of the FTX trading platform, but the data shows that there are still a large number of customers transferring funds on FTX, which shows that SBF said “there are enough “Funds to protect all customer assets” did not play a big role. The market panicked and it was too late to digest the news. In addition to cash withdrawals, they also began to sell the FTX platform currency FTT. As of the evening of the 8th, FTX has suspended withdrawal requests on Ethereum, Solana and Tron, and investors expressed concerns about the liquidity of its platform.
By the early morning of the 9th, the news of “Binance’s acquisition of FTX” was jointly confirmed by the executives of the two exchanges on social media. Investors cheered and the tokens of the two exchanges soared instantly. FTT once rebounded from a low of $14 to 20. The US dollar and BNB currency prices were also obviously driven by the news, rising to a maximum of $379, breaking through the 30-day average price high, up nearly 17% from $324 before the news.
However, is this “turnaround development” really so smooth? After a brief revelry by investors, the market began to digest all kinds of news, and many FUDs also began to surface.
According to media reports, SBF has sought help from billionaires in Wall Street and Silicon Valley to get $1 billion in aid funds, but is this enough to fill the funding gap of FTX’s $5 billion or $6 billion? Is it still able to cope with continued large-scale withdrawals? Coupled with the non-binding letter of intent, Binance can withdraw from the transaction at any time, and investors suddenly realized the huge potential crisis of FTX.
According to The Information, four investors in FTX said they were unclear about the fate of their stakes and were still trying to figure out what the deal would entail. Another investor also said that these institutional investors are concerned that the value of their equity will be wiped out.
At the same time, news of Binance’s acquisition of FTX has drawn attention to whether the deal complies with antitrust regulations. According to foreign media CoinDesk, if local regulators worry that the acquisition will limit the free choice of the market, they have the power to block the major merger, and there are strict laws against anti-competitive behavior.
Suddenly, the market sentiment turned sharply down, from bullish to sharp fall, the massacre swept the cryptocurrency market, dragged down by the news, the cryptocurrency market as a whole fell, and mainstream cryptocurrencies such as Bitcoin and Ethereum were not spared. FTT once fell below $3, with the largest drop of 87% in the past 24 hours, evaporating more than $2 billion in one day. At the time of writing, FTT on the FTX platform was quoted at $4.6, however, officials confirmed that all withdrawal services other than fiat currencies have been stopped.
Analysts at MICA Research concluded, “After a very turbulent night in the crypto market yesterday, Binance CEO CZ and FTX founder SBF both confirmed that Binance will acquire FTX. Although this news once inspired the market to rebound, investors are very It was soon discovered that something was wrong. FTX suspends user withdrawals soon, causing market panic. The acquisition also means that FTX’s cash flow is insufficient. It is not like SBF has previously guaranteed the ability to withdraw funds to all users. The problem of exchange liquidity is real , FTT began to plummet. Then, after Binance acquired FTX, the remaining value of FTT can only be discounted to platform transaction fees and mortgage profits, and no longer includes the growth of the crypto exchange itself, which means that the crypto market disappeared out of thin air. In addition, FTX did not have the high liquidity as originally claimed, so FTT plummeted from $22 to $3, a drop of more than 86%. The FTT plunge triggered an overall crash in the encrypted market, and Bitcoin became a The gains of the past few days fell from $20,500 to $18,500, a drop of more than 10%. Other encrypted tokens were also greatly impacted. Ethereum fell by 15%, and the price returned to $1,300. This liquidity crisis has once again deleveraged the currency circle.”