Crypto market crisis: FTX on the verge of bankruptcy

Posted: 11 November 2022 11:36 am

Binance 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 towards bankruptcy.

Problems for FTX began to surface after a balance sheet for its sibling company, Alameda Research, showed that much of its US$14 billion (£12.1 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 Changpeng Zhao (CZ) announced that his company would liquidate all FTT holdings, which are approximately worth US$2.1 billion.

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

FTT has taken the most significant hit, plummeting from over US$22 to approximately US$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 9 November 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However, the agreement has since been withdrawn. 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 US$15 billion to under US$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 Three Arrows Capital.

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 favour of traditional, less volatile investment opportunities.

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

*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.

Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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