Cryptos Plunge As FTX-Binance Battle Escalates

Tyler Durden's Photo
by Tyler Durden
Tuesday, Nov 08, 2022 - 04:25 AM

Update (1105ET): The price of FTX Token FTT just crashed over 20% after holding support at $22 since the CEO of Alameda Research (FTX hedge fund) offered to buy all Binance's FTT holdings at that level.

Earlier this evening, Binance founder CZ responded with a tweet that he 'will let the market decide'...

And that triggered aggressive selling in FTT...

This is triggering selling pressure across much of the crypto space as FTX liquidity/contagion fears spread as a bank-run of sorts occurs on assets sitting on the FTX platform.

Solana is being hammered lower since it is part of FTX's reserves...

As we detailed below, Bankman-Fried denied CZ's allegations: “A competitor is trying to go after us with false rumors,... FTX is fine. Assets are fine.”

"FTX has enough to cover all client holdings.

We don't invest client assets (even in treasuries).

We have been processing all withdrawals, and will continue to be."

Bitcoin puked below $20,000 on the back of the moves...

Whether strategic or not, FTX is one of Binance’s largest competitors and in just one day, those comments and Binance’s sale of FTT holdings have started a chain of second and third order effects.

*  *  *

As we detailed earlier, new battle of the billionaires is brewing (if not boiling over) among the current kings of crypto as tensions between Binance founder  Zhao “CZ” Changpeng and FTX founder Sam Bankman-Fried have escalated a war of words on Twitter into actions over CZ's claims that FTX's hedge fund's asset base may not be all it's cracked up to be.

The drama began early Sunday morning when FTX's FTT token suddenly plunged as rumors surfaced that a giant whale with 23 million FTT, probably Binance, might be dumping its tokens.

FTT trade volume surged to its highest level in more than a year amid the wave of selling pressure...

Shortly after that initial plunge, Zhao said his company would liquidate its entire FTT holdings in the coming months, on fears that the token might collapse in the same manner as Terra (LUNA) in May 2021.

Binance was an early investor in FTX.

Zhao referenced "recent revelations that have came to light," but did not elaborate publicly.

However, his actions come shortly after a Nov 2nd article on CoinDesk that said much the balance sheet of Bankman-Fried’s trading house Alameda Research is comprised of the FTT token.

Cointelegraph reports that, according to the CoinDesk report, Alameda Research had $14.6 billion on its balance sheet as of June 30, with FTT being the largest holding at $5.8 billion, making up 88% of its net equity. In addition, the firm held $1.2 billion in Solana, $3.37 billion in unidentified cryptocurrency, $2 billion in “equity securities” and other assets.

On the other hand, Alameda Research reportedly had liabilities worth $8 billion, including $2.2 billion worth of loans collateralized by FTT.

That, coupled with the firm’s alleged exposure to illiquid altcoins, prompted some analysts to predict its insolvency in the future. 

“Alameda will never be able to cash in a significant portion of FTT to pay back its debts,” wrote Mike Burgersburg, an independent market analyst, for the Dirty Bubble Media Substack, noting:

“There are few buyers, and the largest buyer appears to be the very company which Alameda is most closely tied to [...] the fair market value of their FTT in the event of large sales would rapidly approach $0.”

Bankman-Fried responded in a brief tweet thread, saying: “A competitor is trying to go after us with false rumors,... FTX is fine. Assets are fine.”

He went on to note that:

"FTX has enough to cover all client holdings.

We don't invest client assets (even in treasuries).

We have been processing all withdrawals, and will continue to be.

It's heavily regulated, even when that slows us down.  We have GAAP audits, with > $1b excess cash.  We have a long history of safeguarding client assets, and that remains true today.

Concluding with an 'oilve branch' perhaps:

"I'd love it, @cz_binance, if we could work together for the ecosystem."

Notably, as Decrypt reports, Zhao's actions (and the Alameda leaks) follow weeks of criticism directed at FTX’s founder and Chief Executive Sam Bankman-Fried for regulatory proposals he put forth in a blog post which recommended restrictions regarding DeFi. He has since committed to revising his regulatory position.

While it's fun to watch billionaire whiz-kids slinging mud at each other, the collateral damage (quite literallY) could be significant for the rest of the crypto universe.

“Overall, FTT is a relatively illiquid token on open markets, so Binance’s plans to liquidate all FTT tokens they hold is quite a significant market event,”  Clara Medalie, head of research at analytics firm Kaiko, said.

“Alameda will likely dedicate considerable resources to ensure the price of FTT doesn’t crash.”

In fact, Alameda's CEO tweeted that her trading firm’s financial condition is stronger than what was reflected by the balance sheet CoinDesk wrote about. She also offered, in a reply to the Binance CEO’s post, to buy his firm’s FTT token holdings for $22 each.

Nothing to worry about at all...

Nevertheless, the FTX outflows continue...

Overall, as Kaiko concludes, it is clear that FTT market makers are working overtime to maintain the price of FTT, which is down 3% over the past day along with most other cryptocurrencies. Despite a massive surge in selling pressure, there is barely a dent in market depth and only a slight increase in price slippage. Ultimately it may be in all parties' best interest to engage in an OTC transaction as suggested by Caroline Ellison to limit price impacts, especially considering Binance, FTX, and Alameda all risk large losses should FTTs price fall significantly.