Monday, March 27, 2023

Explained: Is FTX the next crypto crisis and will there be a Binance bailout?

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Cryptocurrencies across the board are taking a massive hit with Bitcoin reaching a yearly low after the third-largest crypto exchange FTX Trading is reportedly experiencing a liquidity crisis.

Bitcoin plunged as low as the $17,700 mark (€17,600) on Wednesday with other altcoins following suit. Some fear this could be the next Terra Luna saga, causing many to lose their savings in this volatile industry.

Meanwhile, the largest crypto exchange Binance said it plans to buy its rival, the non-US unit of FTX, because, according to Binance CEO Changpeng Zhao, (better known as CZ), FTX is experiencing a “significant liquidity crunch”.

In a Twitter post, CZ said he had signed a letter of intent to buy the company, which has sent the crypto world into a frenzy with prices nosediving as it appeared the possible Binance purchase is a bailout.

Meanwhile, FTX investors scurried to pull their money since the announcement. It has been reported that $6 billion (€6 billion) was pulled in just three days.

How did this happen and is this a crypto crisis? Euronews Next takes a look.

How did it start?

The CEO and founder of FTX Sam Bankman-Fried, is known by his initials SBF and as the “crypto kid,” being just 30 years old.

Last week, CoinDesk reported that a lot of the balance sheet of Bankman-Fried’s trading company Alameda Research was in FTX’s digital token called FTT.

Concerns then mounted about the exchange’s apparent insolvency, and following CZ’s announcement to acquire the Bahama-based exchange firm, there was a slowdown in withdrawals from FTX customers.

The price of FTX’s crypto token also plummeted by 80 per cent, wiping $2 billion (€2 billion) in value. FTP collapsed to around $3 (just under €3) from its price over the weekend of around $20 (just under €200.

As for Bankman-Fried, his personal wealth plummeted almost 94 per cent in a single day to $991.5 million (€991.8 million) and he has now disappeared from Bloomberg’s Billionaires Index.

What does the deal mean?

Binance will essentially become an even bigger force to be reckoned with in the crypto exchange market.

But Bankman-Fried said on Twitter that the deal would protect FTX’s customers and that it would not touch its US unit.

The deal comes as a surprise as Bankman-Fried was hailed as somewhat of a crypto saviour for helping other companies that have faced difficulty during this so-called “crypto winter,” most notably Voyager Digital which failed after it had a stake in Terra.

Is the crypto market at risk?

Following the crash in crypto prices this year, alongside pressure on the mainstream markets due to global financial strain, crypto companies have felt renewed pressure with firms such as Celsius and Three Arrows Capital folding and Bitcoin dropping from $69,000 (€68,000) in 2021 to $20,000 (€19,000) this year.

However, asked about the volatility of the crypto market, CZ told Web Summit attendees last week that “everything is volatile, even the most lucrative tech stocks… but it depends on the perspective,” adding that “if you take a five-to-10-year time frame, crypto is the best-performing asset”.



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