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Crypto market crisis: FTX on the verge of bankruptcy

Posted: 9 November 2022 9:59 pm

Binance today walked away from its letter of intent to buy out rival exchange FTX amid its liquidity crisis.

Today marks one of the darkest days in crypto history as FTX, one of the world’s most prominent and trusted cryptocurrency exchanges, is pushed toward bankruptcy.

Problems for FTX began to surface after a balance sheet for its sibling company, Alemeda Research, showed that much of its $14 billion in assets were held in the FTX native token, FTT.

This raised questions about the company’s risk exposure and the use of customer assets.

In response to the leaked balance sheet, Binance CEO CZ announced that his company would liquidate all FTT holdings — approximately $2.1 billion worth.

The total crypto market cap has taken a substantial hit following the news, falling by over 25% from around $1 trillion to $760 billion — levels not seen since late 2020.

FTT has taken the most significant hit, plummeting from over $22 to approximately $2.50 and triggering a liquidity crunch for FTX.

The platform has since paused withdrawals, effectively freezing user assets on the platform. It remains unclear whether users will be reimbursed.

Total crypto market cap | Image: TradingView

CZ stated in a Tweet posted on November 9 that Binance has signed a non-binding letter of intent (LOI) to acquire FTX and help protect users.

However, the agreement has since been withdrawn, and Binance has walked away from the acquisition deal.

The panic selling across the broader market is likely to continue as more information comes to light surrounding the matter.

The net worth of FTX CEO Sam Bankman-Fried has plummeted by over 90% overnight from an estimated $15 billion to under $1 billion.

However, it is once again the retail investors who suffer and are left out of pocket.

What’s next for crypto?

It’s an undeniable setback for the crypto space as a whole. Trust has been tested numerous times this year following the meltdown of Celsius and 3AC.

However, considering FTX’s supposed legitimacy and regulatory compliance, this is the most testing event for retail and institutional investors.

Many will likely leave the crypto space in favor of traditional, less volatile investment opportunities.

That said, blockchain, the technology underpinning the industry, will continue to mature, and new use cases will inevitably be discovered.

Trying to get a handle on the markets? Explore strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Billy Endres owns cryptocurrencies as of the publishing date

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