FTX Group filed for bankruptcy, Sam Bankman-Fried resigned, Changpeng Zhao warned of a cascading crisis in the crypto industry, and other events of the week gone by.
Bitcoin tests levels below $16,000 amid FTX collapse
In the wake of the crisis and the subsequent bankruptcy of the FTX exchange, Bitcoin tested levels below $16,000. According to CoinGecko, over the past week the price of the first cryptocurrency collapsed by 22%.
At the time of writing, the asset was trading near $16,580.
Over the week, all top-10 market-cap assets ended in the red. The worst performers were Dogecoin (-29.8%) and XRP (-28.7%). Amid Alameda Research’s troubles, Solana’s price plunged 60%, dropping the coin to 15th place in CoinGecko’s ranking.
The total market capitalization of the crypto market fell to $867 billion. Bitcoin dominance declined to 36.6%.
FTX Collapse
On November 6, Binance CEO Changpeng Zhao said he aimed to divest FTX Token (FTT), which together with BUSD totaled about $2.1 billion as a result of the company’s exit from its portfolio investment in FTX. He pledged to minimise the deal’s market impact and expressed readiness to complete it within a few months.
Caroline Ellison, CEO of Alameda Research, owned by Sam Bankman-Fried, said she was willing to buy the utility token from Binance at $22 per unit.
Early on November 8 the market began to storm. Bitcoin fell below $20 000, and investors rushed to dump assets linked to FTX and Alameda Research. Among them, besides FTT, there were Solana, Serum and BitDAO (BIT).
At the same time there was a significant outflow of liquidity from FTX. As later revealed, $6 billion was withdrawn from the platform over 72 hours. By the evening of that day the exchange said that the withdrawal queue was shrinking to a “reasonable level,” and Bankman-Fried assured that assets were in order. In the meantime, the network continued to see mass complaints about withdrawal difficulties.
A few hours later the Binance CEO said that FTX had run into a liquidity crisis and had turned to it for help. The strategic agreement also contemplated a possible takeover of FTX International (the American arm was not affected). Bitcoin reacted to the news with a sharp rise of $1,000.
When the euphoria wore off, prices began to fall rapidly. By evening the rate tested $17,000. Investors also rushed to dump FTT. In the first day, Sam Bankman-Fried’s fortune fell 94% – from $15.6 billion to $992 million (later to zero).
The FTX crisis spurred a new trend — Binance promised to publish a report on the balances of its wallets and to replenish the SAFU reserve fund. The initiative was supported by other players, including KuCoin, OKX, Huobi, Gate.io and Crypto.com.
The first to name a possible reason for the sudden collapse was Coin Metrics — head of R&D Lucas Nuzzi proposed that FTX provided FTT for Alameda Research worth $4.19 billion. He noted that the problems of hedge fund Three Arrows Capital and the preceding Terra collapse were the starting point. Alameda “survived” thanks to financing from FTX, Nuzzi concluded.
Another analytics service — Glassnode — later assessed the scale of on-chain flows of FTX, Alameda Research and Binance in the context of on-chain metrics.
Leading players hurried to deny ties to FTX and Alameda. Among them Coinbase, Circle, Kraken, Bitfinex, Cumberland, Deribit and several others. In the course of discussing the deal terms, Changpeng Zhao urged restraint in trading FTT and said that troubles at a competitor are not Binance’s victory. In a staff memo he noted that Bankman-Fried’s request for help came as a surprise to him.
That evening, Binance refused to buy FTX, noting significant discrepancies in the company’s balance. By that time the fact that Bankman-Fried had used customer funds had become increasingly evident. After Binance’s refusal to acquire the platform, Tron founder Justin Sun said that he is working with FTX on a possible solution.
In the night of November 10, Bitcoin fell below 16,000, and Ethereum — below $1,100. The rapid correction led to panic among Solana validators. Because of its ties with Alameda, the latter decided to withdraw a large amount of assets from staking (30 million SOL). The Crypto.com platform even suspended withdrawals of USDC and USDT on Solana.
A joint decision with Justin Sun was to limit withdrawals of funds in TRX, JST, BTT and other assets affiliated with him. Users had no choice but to buy the indicated coins. The price difference with other venues triggered additional losses.
Media outlets began reporting a “hole” in FTX’s balance. It ranged from $4 to $8 billion. The company’s subsidiaries began to close due to regulatory pressure. The Bahamas Securities Commission blocked FTX assets, and in Cyprus the company decided to revoke the license that allowed it to operate in Europe.
Inside the main office, layoffs started, employees said they had lost funds. At the request of law enforcement for the duration of the investigation, Tether froze $46 million of FTX-held USDT.
Bankman-Fried said that despite the liquidity crisis, the value of FTX’s assets exceeds customer deposits. Justin Sun stated he was ready to provide a “billion-dollar aid.” However, it was likely inadequate. Media reports indicated that in investor meetings Bankman-Fried voiced a figure of $10 billion.
On November 11, FTX Group, comprising 130 legal entities, filed for bankruptcy, and the exchange’s CEO left the post.
The next day unknown parties withdrawed more than $400 million in digital assets from FTX wallets. By some estimates, the total volume moved had already reached $600 million.
What to discuss with friends?
- SEC took an interest in promoting crypto projects HEX, Pulsechain and PulseX.
- A US resident admitted guilt in Silk Road fraud of 50,000 BTC.
- Tornado Cash was accused of facilitating funding for North Korea’s nuclear program.
- Meta laid off 11,000 employees.
Huobi accused the pNetwork team of “malicious conduct” in the GALA incident
At Huobi noted, that Gala Games and pNetwork teams could have used a safer method to fix the vulnerability. The developers informed the exchange via unofficial channels 50 minutes before the “hack,” leaving no time for an adequate response.
The court ruled that LBRY tokens are securities
The court granted a SEC lawsuit against the blockchain startup LBRY with accusations of violating securities laws when selling its own tokens. The regulator filed the lawsuit against LBRY in March 2021.
CEO Jeremy Kaufman believes the process has created an extremely dangerous precedent that turns every cryptocurrency in the US into a security, including Ethereum. Other experts believe that the verdict in the LBRY case could set a precedent for Ripple as well.
Developers added a cross-chain bridge aggregator to MetaMask
MetaMask Bridges has been developed to move tokens between networks. The service aggregates the best routes considering time, cost and security. MetaMask Bridges is available in mobile and desktop versions within Portfolio Dapp. During the beta, fees are not charged.
Changpeng Zhao warned of a cascading crisis in the crypto industry
The current situation in the crypto industry echoes the 2008 financial crisis, and in the coming weeks even more companies may go bust. This view was expressed by Binance CEO Changpeng Zhao.
At a conference in Indonesia he suggested that the market still has to feel the consequences of the FTX exchange crisis and its Alameda Research connection.
Also on ForkLog:
- CFPB named the most popular Bitcoin scam schemes since 2018.
- Binance announced plans to integrate Bitcoin payments into “Diia.”
- WSJ reported on the sale of Bitcoin miners at discounts of more than 70%.
- Michael Saylor confirmed MicroStrategy’s plan to further buy Bitcoin.
What else to read?
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The cryptocurrency industry is attracting more institutional players. This is evidenced by new investments in infrastructure and the growing attention companies give to Bitcoin as an asset class. The most important events of the past weeks are in ForkLog’s обзор.
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