With memories of the early summer crypto crash, precipitated by the utter collapse of Terra’s ecosystem, still fresh in the collective psyche of investors, rumors of a bank run on the crypto exchange FTX have captivated a much more cautious and weary audience. At the heart of this showdown lies a very public feud between the founder of Binance, Zhao “CZ” Changpeng, and the owner of FTX, Sam Bankman-Fried. With the stability of the entire crypto sphere hanging in the balance, the stakes cannot be any higher.
The Backstory
Toward the start of November, Coindesk cited an internal FTX document that suggested financial vulnerabilities in the balance sheet of Sam Bankman-Fried’s other major enterprise, Alameda Research. While FTX is the world’s second-largest crypto exchange after Binance, Alameda Research is primarily concerned with crypto trading activities. As of the 30th of June, Alameda had $14.6 billion in assets. However, as per the document, FTX’s FTT token constituted the largest asset on Alameda’s balance sheet, including $3.66 billion in unlocked FTT as well as $2.16 billion in FTT collateral. As a refresher, holders of the FTT token receive rewards and discounts on FTX’s trading fees. FTX maintains FTT’s value by using a third of its trading commissions to buy back FTT coins, which are then burnt. Of course, Alameda not only had FTT-denominated assets but liabilities as well. For instance, Coindesk cited $292 million in “locked FTT” that is part of Alameda’s total liabilities worth around $8 billion. With so much of Alameda’s balance sheet comprising of the FTT tokens, it does increase the trading arm’s financial vulnerabilities, which then pose negative ramifications for its sister enterprise, the FTX Exchange. For instance, according to BitcoinMagazine’s Dylan LeClair, Alameda has FTT assets worth $5.82 billion, while the market cap of the FTT token on the 03rd of November was just around $3.35 billion.
— CZ 🔶 Binance (@cz_binance) November 6, 2022 Binance’s Zhao “CZ” Changpeng then picked up Coindesk’s report and tweeted that the exchange will liquidate “any remaining FTT on our books” while adding the qualifier that this liquidation will take place in a manner so as to minimize “market impact.”
— CZ 🔶 Binance (@cz_binance) November 6, 2022 In a separate tweet, CZ then justified this action as “post-exit risk management” while citing the example of Terra’s LUNA crash earlier this summer.
FTX is fine. Assets are fine. Details: — SBF (@SBF_FTX) November 7, 2022 FTX then hit back by suggesting that Binance was simply trying to go after the exchange due to peer rivalry.
— SBF (@SBF_FTX) November 7, 2022 FTX also assured investors that it could easily cover all client holdings, with GAAP audits certifying over $1 billion in excess cash. FTX has also offered to buy Binance’s FTT holdings.
GM — Emperor👑 (@EmperorBTC) November 8, 2022 Despite these assurances, investors continue to withdraw liquidity from the FTX Exchange, hammering the FTT token in the process. According to Dune Analytics, FTX has suffered a net outflow of over $147 million over the past 24 hours. Moreover, the FTT token is down over 20 percent in the past 24 hours.
What Is Next for FTX and Its FTT Token?
If I had coins on FTX, I would certainly remove them https://t.co/adrNHFduqW — Matthew Hyland (@MatthewHyland_) November 7, 2022 There are isolated reports that FTX is blocking some withdrawals.
This method worked for me after having transactions requested for hours. USDT worked the fastest. Great spot @Auri_0x. https://t.co/qvgwva8JCA — CryptoJoe (@Crypto_Joe10) November 8, 2022 If you want instantaneous withdrawals, apparently, the best way would be to withdraw your assets to Solana and then Wormhole to Ethereum.
Meanwhile, $1.43B worth of stablecoins left @FTX_Official on Nov. 7 alone, making a netflow of $-15M. pic.twitter.com/YUCBPvGoWw — COIN360 (@COIN360com) November 8, 2022 The Twitter thread above details some of the most important developments that have taken place recently in the FTX vs. Binance saga. Short bets against FTT are soaring.
— Gary Black (@garyblack00) November 8, 2022 Readers should note that it remains unlikely that FTX will go under. However, bank runs are essentially a self-fulfilling prophecy. If enough people believe that there will be a bank run, then most definitely, there will be a bank run. Trade accordingly.
Update: FTX Has Apparently Halted Withdrawals
In what is never a good sign, The Block has cited the Etherscan data to suggest that FTX seems to have halted withdrawals for now. This comes amid sporadic reports that users’ withdrawal requests are not being processed by FTX. We are waiting for the exchange’s official comments on this problematic development.
Update 2: Binance is Buying FTX!
Bloomberg is now reporting that Binance has reached an agreement to purchase the troubled crypto exchange operator, FTX. The terms of the deal have not been disclosed.
