Bitcoin price collapses after failed FTX purchase

New York, Frankfurt New bad news for crypto investors: The takeover of FTX.com by the market leader Binance failed late Wednesday evening, as Binance announced on Twitter. Binance checked the books of FTX and then refrained from a possible acquisition. Binance also referred to media reports that FTX is said to have embezzled customer funds.

Bitcoin, the largest and oldest digital currency, fell below the $16,000 mark at times on Wednesday, according to data from the analysis house Coinmarketcap – the lowest level in over two years. The currency has lost more than three quarters of its value since its all-time high in November of last year, when Bitcoin was trading at just over $68,000. The cyber currency is currently trading at around $16,500.

Ether, the second most important cryptocurrency, lost over 14 percent on Wednesday evening. Over a 52-week period, the cyber currency has also lost 75 percent in value. Ether is currently trading at around $1200.

The crypto exchange founded by Sam Bankman-Fried unexpectedly ran into trouble earlier this week. A Coindesk report had revealed massive weaknesses in the business model of FTX and its sister company Alameda, both of which were founded by Bankman-Fried.

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Binance boss Changpeng Zhao (called CZ) then announced that he wanted to part with his FTT tokens. FTT is the cryptocurrency issued by FTX. Binance had invested in FTX in 2019, but last year FTX bought Binance shares. In return, CZ received, among other things, FTT tokens worth 530 million dollars, which he now wanted to sell.

This triggered a run from which the once third-largest trading venue for cryptocurrencies and derivatives never recovered.

Bankman-Fried after failed FTX takeover: “I screwed it up”

An emergency sale to Binance was the only solution. But Binance boss CZ had kept all options open from the start. On Tuesday he merely signed a non-binding letter of intent. This allowed him to withdraw from the deal. On Wednesday, Binance wrote on Twitter: “The problems are beyond our control and beyond our ability to help.”

Binance was also worried about becoming the focus of regulatory projects. According to industry circles, FTX must now prepare for insolvency proceedings. According to reports, the crypto exchange is facing a deficit of up to eight billion dollars. In order to remain solvent, four billion dollars would be needed.

FTX is said to be trying to raise funds in the form of loans or equity, or a combination of both. “I screwed it up,” Bankman-Fried said on a conference call with investors, according to Bloomberg. He would be “incredibly, unbelievably grateful” if investors could help.

Sam Bankman Fried

Also founded Alameda.

(Photo: via REUTERS)

FTX has long been considered one of the most respected providers in the crypto world, seeking proximity to regulators and recently buying up troubled companies itself. That his empire was able to ebb away so quickly has further shaken confidence in the crypto world.

The industry had already experienced unprecedented crises in the previous months: in mid-May, the crypto project Terra crashed and wiped out investor assets of around 50 billion dollars. And in July, crypto platform Celsius Network also filed for bankruptcy.

Bitcoin and Ethereum: Cryptocurrencies collapse

This crisis is now entering the next, third phase. In addition to the price losses, the market capitalization also shows how much trust has been lost in the crypto market as a result of the crisis at FTX. Overall, the market cap of the entire crypto market has fallen from $1.05 trillion to around $844 billion since the weekend. A drop of almost 20 percent.

“Price moves of this nature highlight the fragility of the crypto market. Investors should be aware of the risks of digital currencies,” said Ulrich Stephan, chief investment strategist for retail and corporate clients at Deutsche Bank. Analysts at the major US bank JP Morgan warned of a possible contagion of other companies. Binance CEO CZ also acknowledged that FTX’s collapse had “significantly” eroded confidence in the industry.

Crypto Crisis: Investors Prepare for Total Failure

In addition to FTX, Alameda is also in crisis. The hedge fund also acted as a so-called market maker on FTX and helped match buyers and sellers. That could further increase the pressure on crypto prices, analysts at Fundstrat warn. Alameda was also founded by Bankman-Fried.

According to media reports, the balance sheets of FTX and Alameda contain large amounts of the in-house FTX coin FTT and Solana. FTT was down more than 40 percent on Thursday after the coin had already lost almost 80 percent in value. An FTT was worth $2.80 on Thursday – it was over $25 a week ago.

But the cryptocurrency Solana, which is connected to the blockchain of the same name, is said to be on Alameda’s balance sheet and therefore had to accept massive price losses. The token was down about 24 percent on Thursday and was trading at around $14. Just a week ago, the rate was $36.

Meanwhile, FTX’s many prominent investors are preparing for a total failure. The customers who still have assets on the stock exchange probably have to do the same.

Backers included the world’s largest wealth manager Blackrock, Ontario teachers’ pension fund, and venture capitalists Softbank and Sequoia. Sequoia previously announced that it would write off the full value of its interests in FTX’s international and US businesses totaling approximately $214 million.

“We’re in an industry where we take risks,” Sequoia wrote in a note to investors. “Some investments will surprise to the upside, others to the downside,” it said.

More: Binance boss Changpeng Zhao is the new force in the crypto industry

First published: 2022-11-09, 8:51 p.m. (last updated: 2022-11-10, 10:29 a.m.).

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